brewer 1990

Michel

Tampon

Marxist Theories of Imperialism

A Critical Survey Second Edition

Anthony Brewer

London and New York

Marxist Theories of Imperialism

A Critical Survey

This seminal account of Marxist theories of imperialism is nowappearing in a revised and expanded edition.

Covering figures as diverse as Hobson, Luxembourg, Hilferding,Bukharin, Lenin, Frank, Wallerstein, Emmanuel and Warren, aswell as Marx himself, it analyses how Marxists have accounted forthe role of imperialism in the spread of world capitalism.

Marx had expected the spread of capitalism to lead to fullcapitalist development everywhere (unless anticipated by socialistrevolution), while Lenin and his contemporaries concentrated onthe role of monopoly and inter-imperialist rivalry. More recently,the focus of theory has shifted to the explanation ofunderdevelopment, which has prompted a renaissance of Marxistthought.

This book provides a clear guide to this important body of theory,establishing how the competing theories relate to each other andassessing them in terms of their logical coherence and theirrelevance to real problems.

Anthony Brewer is senior lecturer in Economics at the University ofBristol. He is the author of A Guide to Marx’s Capital, 1984, and ofa number of articles in learned journals.

First published 1980 by Routledge & Kegan Paul

This edition published in the Taylor & Francis e-Library, 2001.

Second edition 1990

© 1980, 1990 Anthony Brewer

All rights reserved. No part of this book may be reprinted or reproduced orutilized in any form or by any electronic, mechanical, or other means, nowknown or hereafter invented, including photocopying and recording, or inany information storage or retrieval system, without permission in writingfrom the publishers.

British Library Cataloguing in Publication DataBrewer, Anthony, 1942–

Marxist theories of imperialism : a critical survey. – 2nd ed.1. Imperialism. Marxist theories, historyI. Title325.3201

Library of Congress Cataloguing in Publication DataA catalogue record for this book is available from the Library of Congress

ISBN 0–415–04469–3 (Print Edition)ISBN 0-203-00381-0 Master e-book ISBNISBN 0-203-14742-1 (Glassbook Format)

vii

Contents

Preface ix

Abbreviations xi

1. Introduction 11.1 Historical outline 31.2 Historical materialism 111.3 Theories of capitalism as a world system 16

2. Marx 252.1 Capitalism 262.2 The dynamics of capitalism 322.3 The origins of capitalism 362.4 The expansion of capitalism 422.5 Colonialism 482.6 Summary 56

3. Luxemburg 583.1 The realization of surplus value 603.2 The process of capitalist expansion 663.3 Summary 72

4. Hobson 734.1 Under-consumption 754.2 Monopoly and capital export 774.3 The politics of imperialism 824.4 Summary 86

5. Hilferding 885.1 Finance capital 895.2 Protectionism and economic territory 955.3 Capital export 1005.4 Imperialism 1045.5 Summary 108

6. Bukharin and Lenin 1096.1 Bukharin 1116.2 Lenin 1166.3 The labour aristocracy 1236.4 Ultra-imperialism 1286.5 The Communist International 1336.6 Summary 134

CONTENTS

viii

7. Baran 1367.1 Monopoly and stagnation 1377.2 Growth and surplus 1427.3 The developed countries 1457.4 The origins of underdevelopment 1507.5 The persistence of underdevelopment 1527.6 Summary 160

8. Dependency Theories 1618.1 Frank 1638.2 Wallerstein 1768.3 Laclau’s critique 1798.4 Amin 1828.5 Dependency theory: the balance sheet 1968.6 Summary 198

9. Emmanuel 2009.1 Unequal exchange 2019.2 Wages 2089.3 Demand and development 2109.4 Methods of production 2149.5 Critique of the theory 2169.6 Summary 222Appendix 222

10. Classes and Politics in the Third World 22510.1 Modes of production 22610.2 Indian debates 23610.3 Arrighi 24110.4 Rey 24610.5 Leys 25310.6 Gallagher and Robinson 25610.7 Summary 258

11. After Imperialism? 26011.1 Multinational corporations 26111.2 Central capital: unity or rivalry? 26511.3 Capitalist development in the Third World 27211.4 Summary 283

Bibliography 285

Index 294

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Preface

My aim in this book is to survey Marxist writings on imperialismand, more broadly, on the emergence and development of the worldcapitalist economy. I have tried to maintain a sympathetic butcritical position; critical because Marxist theories have oftensuffered from being accepted or rejected wholesale, rather thanbeing subjected to detailed scrutiny and constructive criticism, andsympathetic because I think there is a lot to be learned from them.

In revising the book for the second edition, I found few majornew ideas to incorporate; the last decade has been one ofconsolidation and reassessment. Dependency theories were stillalive ten years ago, but the criticisms I and others made then havenow been generally accepted, so I have gathered the story of the riseand fall of dependency theory into one (long) chapter. I have alsoadded a chapter on Hobson which should, with hindsight, havebeen there all along.

I have benefited greatly from constructive criticism from others.Roger Berry, Martin Browning, Aidan Foster-Carter, and AndrewFriedman all gave me helpful advice when I was writing the firstedition, but are not to blame for the results. Karen Snodin helpedwith translations. Gillian Baker, Pat Shaw, and Marjorie Lunt typedthe first edition. The new edition, for those who are interested, waswritten and laid out in Microsoft Word, to produce a PostScript file,effectively using the typesetter to produce camera-ready copy as ifit were a printer attached to my microcomputer. I owe a special debtof thanks to Emma Waghorn for firm but sympathetic editing, andto Alan Jarvis, David McCarthy, and others at Routledge who haveguided me through the process. Finally, Janet Brewer has giveninvaluable support throughout.

Chapter 4 is based on a paper presented at a conference onimperialism at Catania, Sicily, September 1987, to be published inthe conference volume, Italia e Inghilterra nell Eta dell’Imperialismo, edited by Professor E. Serra.

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Abbreviations

Some books that are referred to repeatedly are cited in the text byan abbreviated form of their title. They are listed below; for fulldetails see the bibliography.

Accumulation Luxemburg (1951), The Accumulation ofCapital

Alliances Rey (1973), Les alliances de classesAnti-Critique Luxemburg (1972), The Accumulation of

Capital – an Anti-CritiqueAWS Amin (1974), Accumulation on a World ScaleCapital Marx (1961, 1957, 1962), Capital, vols I-IIIColonialisme Rey (1971), Colonialisme, neo-colonialisme et

transition au capitalismCULA Frank (1969a), Capitalism and Underdevel-

opment in Latin AmericaCWE Wallerstein (1979), The Capitalist World

EconomyDAU Frank (1978), Dependent Accumulation and

UnderdevelopmentEPEA Arrighi and Saul (1973), Essays on the Politi-

cal Economy of AfricaFC Hilferding (1970), Finance CapitalImperialism Lenin (1950), Imperialism, the Highest Stage

of CapitalismIUD Amin (1977), Imperialism and Unequal

DevelopmentIWE Bukharin (1972a), Imperialism and World

EconomyLAUR Frank (1969b), Latin America: Underdevel-

opment or RevolutionLL Frank (1972), Lumpenbourgeoisie:

LumpendevelopmentManifesto Marx and Engels (1950), Manifesto of the

Communist PartyMWS Wallerstein (1974a), The Modern World

SystemPEG Baran (1973), The Political Economy of

GrowthUD Amin (1976), Unequal DevelopmentUE Emmanuel (1972), Unequal Exchange

1

l

Introduction

The last two or three centuries have seen two interconnecteddevelopments that have transformed the world. First, productionand productivity have increased to levels that would previouslyhave seemed not so much impossible as inconceivable, and thewhole nature of industry and of many of the goods produced hasaltered beyond recognition. How could earlier generations haveconceived of live colour television pictures from the moon,broadcast to a mass audience in their own homes, or flocks ofaircraft carrying northern Europeans on their annual migration tothe resorts of the Mediterranean? Second, inequalities of wealthand power between different parts of the world have grown to anequally unprecedented degree. Americans and Europeans sit incomfortable homes, watching televised reports of famine in Africa.These are facts that everyone knows, but we tend to take them forgranted and to ignore the extent to which they determine the wholecharacter of the modern world. They can only be understood andanalysed by looking at the historical process by which they haveevolved, on a world scale, over a period of centuries.

The same period has been marked by a third development, therise to dominance of the capitalist mode of production, in whichproduction is carried out by many distinct, privately ownedenterprises which sell their products on the market and employwage workers. Capitalism has almost completely supplanted earlierforms of organization (peasant agriculture, feudal estates, slaveplantations) in the advanced countries. In the underdevelopedcountries, peasant agriculture still supports a large part of thepopulation, but these areas have been drawn into a world market

MARXIST THEORIES OF IMPERIALISM

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and a world-wide system of specialization which has completelyundermined traditional economic and social structures.

The colonial empires hacked out by European powers, and thewhole system of European and American military and politicaldominance over the world, which reached its peak in the earlytwentieth century, can only be understood in the context of thisprocess of uneven development. The basis for military supremacywas economic. Superior technology meant superior armaments anda capacity to transport armed men to any part of the world. Superioreconomic organization made it possible to finance the overheadcosts of military forces, and to deploy them to devastating effect.The motives for imperial expansion were also predominantlyeconomic. Some historians now seek to deny it, but the men of theEast India Company, the Spanish conquistadors, the investors inSouth African mines and the slave traders knew very well what theywanted. They wanted to be rich. Colonial empires were exploitedruthlessly as sources of cheap raw materials and cheap labour, andas monopolized markets. The romantic image of empire (flagsfluttering over distant outposts, and the like) may be appealing, buta serious study must concentrate on more fundamental economicissues.

I do not claim that every incident in the history of empire can beexplained in directly economic terms. Economic interests arefiltered through a political process, policies are implemented by acomplex state apparatus, and the whole system generates its ownmomentum. Much of the history of the British empire, for example,pivots on the need to safeguard the route to India; British policy in,say, the Mediterranean should not be explained in terms of theeconomic gains to be made in that area alone, but in terms of themaintenance of empire as a whole. The drive to imperial expansionmust be explained as one element in the whole process of capitalistdevelopment.

Equally, the creation of formal empires, under a single flag and asingle political authority, is only part of the story, and perhaps notthe most important part. Formal political independence, with aflag, an airline and a seat at the UN, does not guarantee real equality,though it may be a necessary condition for real independence anddevelopment. Some countries have never been formally annexed,and most Latin American states have been formally independent fora century and a half, but they have been drawn into a system of

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inequality, exploitation and dominance almost as deeply as if theyhad been subjected to direct colonial rule. Underdevelopedcountries still participate on very unequal terms in a world systemof trade and investment.

My purpose in this book is to survey the various accounts of thedevelopment of the capitalist world economy that have been putforward in the Marxist tradition. I shall not discuss non-Marxisttheories (except where they are relevant to the main theme), pre-capitalist empires or Soviet expansionism. This is not to deny theimportance of these topics (especially the last); it is simply a matterof drawing a line around a reasonably coherent subject area. I shallnot attempt to define ‘imperialism’ at this stage; indeed, I shall notpresent a final definition at any stage. Different writers used theword differently, and I shall follow the usage of the writer underdiscussion. Some of the authors discussed in the book did not usethe word ‘imperialism’ at all. The set of topics set out in thepreceding pages – the emergence of capitalism, its spread throughthe world, the unequal development of different areas, thedominance of some countries over others – all hang together,regardless of which elements we choose to label ‘imperialism’.

I have argued that imperialism (in any of several different sensesof the word) must be seen in the context of the whole history ofcapitalism on a world scale. Correspondingly, any theory ofimperialism can only make sense when seen as a whole. This dictatesthe structure of the book. The work of each major writer must beseen as a whole, since a ‘vision’ of the whole system determines thetreatment of particular aspects of it. The main body of the book willtherefore be devoted to an examination of the work of a successionof major theorists in (approximate) chronological order.

1.1 HISTORICAL OUTLINE

As background, I start with a very brief, selective, and inevitablyinadequate outline of the historical record. The fifteenth century isas good a starting point as any. At this time, Europe was notparticularly rich or technically advanced compared with, say, Indiaor China. The Arabic cities dominated what long-distance tradethere was, controlling the trading links between Europe and Asia,


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and the main Indian ocean routes. Certain parts of Europe had,however, a crucial lead in weaponry and shipbuilding, and theability and incentive to take advantage of it. This was the basis forthe explosive expansion of the Spanish and Portuguese sea-borneempires at the end of the fifteenth and the beginning of the sixteenthcenturies.

During the first part of the ‘mercantile’ period (roughly 1500-1800), Spain and Portugal dominated. The Spanish empire wasbased on precious metals mined in central America and the Andes,funnelled through Panama to Spain, running the gauntlet of piracyin the ‘Spanish Main’ on the way. The mines, and the agriculturalestates that fed them, were worked by forced labour. ThePortuguese empire was more a string of trading posts controllingthe traffic in spices and, later, in African slaves, but leaving socialsystems and systems of production relatively untouched. At thesame time the expanding mercantile cities of western Europe cameto depend on grain produced by serf labour on the estates of Prussiaand Poland, shipped from Baltic ports.

In the seventeenth century, the emphasis shifted to theproduction of sugar in slave plantations in the Caribbean andBrazil, while Spain and Portugal progressively lost control of theseas and of key parts of their empires, first to the Dutch and then tothe English and French. Labour was scarce in sugar-growing areas,and the ‘Atlantic triangle’ was born; manufactured goods(especially guns) were shipped to Africa, slaves to the Americas, andsugar back to Europe. As the eighteenth century went on, English,French, and Dutch trading posts in Asia expanded into territorialpossessions, and there were signs of the more profound changes inEurope that developed in the following century.

In the mercantile period, then, European commerce came todominate much of the world, though the goods exchanged in inter-continental trade were still mainly luxuries (sugar, spices, tobacco)together with slaves and precious metals. The organization ofsociety and of production in South and Central America was totallyand forcibly transformed, with whole populations exterminatedand replaced, while in Africa and Asia the impact of Europe was ingeneral either superficial or wholly destructive (the slave trade, thelooting of India). How this pattern of trade and production should

INTRODUCTION

5

be described is controversial. Frank and Wallerstein (chapter 8below) insist that it was a capitalist world system, while others suchas Banaji, Brenner and Rey (chapter 10) would describe it as asystem of mainly pre-capitalist societies, linked by exchange, withan evolving capitalist centre in Europe. This disagreement is part ofa larger debate over the definition of capitalism.

By the eighteenth century, capitalist relations of production,characterized by the employment of free wage-labour in privatelyowned businesses producing for the market, were well establishedin England and, to a lesser extent, elsewhere in north-west Europe.Productivity was rising fairly rapidly (though not as rapidly aslater), and was already well above levels in the rest of the world. Onefactor in this general technical advance was the ‘scientificrevolution’, which was closely linked to military and mercantileneeds. Astronomy and the measurement of time, critical tonavigation, were at the heart of Newtonian physics, and thus of awholly new view of nature.

The decades around 1800 were a critical turning point,separating the mercantile period from the classical epoch ofcapitalist development. In the political sphere, the American andFrench revolutions created a new conception of politics. Britainsupplanted France as a major colonial power and took effectivecontrol of India, which became the linchpin of the British empire.Even more significant, the industrial revolution, centred in Britain,marked the start of a new era. It was a protracted affair, but takenas a whole it was one of the most important events in human history.Its short-run effects on the mass of the people were probablyretrograde, but it became possible to conceive of the abolition ofpoverty and drudgery through mechanized production. Marx’svision of socialism was based squarely on the potential created byindustrialization.

The industrial revolution happened where and when it didbecause of a conjunction of external and internal factors (whoserelative importance is a matter of debate). The organization ofproduction in Britain was by this stage wholly capitalist, based onfirms that were relatively large (by previous standards) butnumerous, flexible, and driven by fierce internecine competition.They could recruit workers with the necessary skills from a


6

substantial urban proletariat, and lay them off again equallyquickly when market conditions changed or when labour-savinginnovations made them redundant. Britain controlled the marketsof the world, a vital advantage since the most important rawmaterial, cotton, had to be imported, while a large part of theproduce was exported. The profits of empire contributed to theready availability of funds for investment. This was a new kind ofsociety, which the rest of the world regarded with amazement. In awider sense, the industrial revolution went on for much of thenineteenth century, a period of sustained development in the maincentres of capitalism. The new industrial methods were introducedinto industry after industry, and spread to other parts of Europe andNorth America. This was the context in which Marx wrote. By theend of the nineteenth century, Germany and the United States hademerged as major industrial rivals to Britain, and Japan had startedon the process of industrialization.

The case of Japan is important, since it is still almost the onlyexample of complete capitalist development outside Europe andareas of European settlement. Those who argue that subjection toEurope caused the failure of development elsewhere can point outthat Japan was one of the few areas that remained outside Europeancontrol, while those who argue that the success or failure ofcapitalist development depends primarily on internal socialstructures can point out that Japan started from a social structurethat had much in common with European feudalism.

The area effectively integrated into the capitalist world economyexpanded throughout the nineteenth century. Most of LatinAmerica achieved formal independence, but came under informalBritish control. Asia, the largest and most populous continent, wasopened up for capitalism. The British established effective controlof the whole Indian subcontinent, and forced China, at gunpoint, topermit the import of opium. The French got Indo-China and theDutch already controlled the East Indies. Russia was steadilypushing back its frontiers in Siberia and central Asia. Parts of Africawere colonized, setting the scene for a scramble for the rest at theend of the century. North America and Australasia were opened up.It was in this period that the world was definitely divided into‘advanced’ and ‘underdeveloped’ areas, and the basic patterns of

INTRODUCTION

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the present world economy were established. A new pattern of tradeemerged, replacing the trade in luxuries of the mercantile period:advanced capitalist centres exported manufactures and importedfood and raw materials. The physical bulk of goods tradedexpanded colossally, but transport had been transformed alongwith the rest of industry and was able to cope.

The end of the nineteenth century marks another major turningpoint, the beginning of what Lenin called the ‘imperialist stage’ ofcapitalism. Following his lead, many Marxists reserve the term‘imperialism’ to describe the twentieth century, using other termsfor the expansionism of earlier periods. I will follow the usage ofwhichever writer is under discussion. There was a rapid increase inthe size of firms and a spread of monopoly in the form of cartels,trusts and so on. The twentieth century is often said to be the periodof ‘monopoly capital’. Exports of capital had increased ratherearlier, augmenting rather than replacing trade in goods, at first inthe form of loans to governments and public utilities, butincreasingly as ‘direct’ investment in productive enterprises. In theearly twentieth century investment was mostly in resource-basedindustries and related infrastructure. The natural resources of thewhole planet were opened up for exploitation.

At the same time there was a scramble for control of the fewremaining areas not already brought under colonial control,especially in Africa. Latin America passed, more gradually, from theBritish to the American sphere. Once the division of the world wascomplete, any further territorial expansion had to be at the expenseof rival colonial empires. There was a sharp increase in tensionbetween the main powers, especially between Germany (the risingpower) and Britain (with the largest empire), which culminated intwo world wars. That the rise of monopoly, the export of capital andthe outbreak of inter-imperialist rivalry are connected is generallyagreed among Marxists, though the exact nature of the connectionis more disputable. This is the subject matter of the theories ofimperialism worked out at the time by Hobson, Hilferding,Bukharin and Lenin (chapters 4-6).

The twentieth century has seen a number of developments. First,the area covered by the world capitalist system has contracted, withthe subtraction first of Russia, then of China, Cuba, much of south-


8

east Asia and so on. In all cases these areas broke away as a result ofwar or of violent internal struggles. The nature of the systemsinstalled in these countries will not be discussed here, but the fact oftheir existence has had important effects on the world balance ofpower. Second, international trade has grown more rapidly thantotal production, while international investment by major firms hasgrown even faster, making them into ‘multinationals’ operating ona world-wide basis. Markets for liquid money capital have also beeninternationalized. The world capitalist economy is much moretightly integrated than ever before, despite the achievement offormal independence by most underdeveloped countries. Thesystem cannot possibly be understood by looking at particularnation states in isolation. Third, the capitalist world became veryclearly divided into advanced and underdeveloped countries,differing not only in income levels, but in almost every other aspectof their economic and social structure. There are, as in all previousperiods, a few doubtful cases, but it is notable how small a fractionof the world’s population they contain. In almost all cases there isno difficulty in assigning a country to one group or the other. Thiscleavage is clearly a major structural feature of the twentieth-century world system, though it may be breaking down as the endof the century approaches.

The advanced countries (Europe, North America, Japan,Australasia) went through a bad patch in the two world wars andthe depression of the 1930s, but then experienced the ‘long boom’of the 1950s and 1960s. Overall, levels of productivity haveincreased enormously over the century and the capitalist form oforganization has almost completely displaced others. Trade andinvestment flows within the advanced ‘centre’ have grownespecially rapidly, so trade with the underdeveloped ‘periphery’ isnow a relatively small part of the total. The economy of a typicaladvanced country has a relatively large industrial sector, and aneven larger service sector organized on modern capitalist lines.Agriculture employs a small fraction of the labour force, usingmodern capital-intensive techniques. (In some cases, a peasantsector survives with the help of subsidies.) The majority of thepopulation are wage earners, and trades union organizations, ifthey have not fundamentally altered the nature of capitalism, have

INTRODUCTION

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at least ensured that the benefits of increased productivity have beenshared with the working class. Democratic institutions havebecome well established, with free elections and guarantees ofpersonal freedom. The advanced countries contain theheadquarters of the main multinational companies and are the maincentres of technological development. They produce and export avery wide range of manufactured and primary products. Theyimport some primary products and a growing volume of labour-intensive manufactured goods from underdeveloped areas.

Turning to the underdeveloped world, there are importantdifferences between the ‘three continents’ (Latin America, Asia,Africa). In Latin America, indigenous societies were almost whollydestroyed centuries ago, white or creole ruling classes with aEuropean culture were established, and the institutions of themodern state were installed at almost the same time as in Europe.The larger Latin American countries have average income levelswell above those of Africa and Asia, though equally far below thoseof Europe. At the same time, they have all the structural features ofunderdevelopment. In Asia, major pre-capitalist civilizations weredrawn into the capitalist orbit more gradually and at a later date.The larger Asian countries have well-established local rulingclasses, a considerable technological capacity, and industrial sectorswhich are quite large in absolute terms, though small relative topopulation. Average income levels, however, are very low, with anenormous mass of peasants and workers reduced to near starvationlevel. Some smaller Asian countries, on the other hand, arerelatively industrialized, and have experienced very rapid economicgrowth, while Japan is, of course, in another category altogether.Africa suffered the destructive effects of the slave trade over severalcenturies, but actual European penetration into most of thecontinent did not come until the ‘imperialist’ stage, much later thanin Asia or Latin America. It is, in general, the least developedcontinent, with tiny industrial sectors and low levels of income, andis still ravaged by famine and disease.

Despite these differences, one could still talk, in the middle of thetwentieth century, of a ‘typical’ underdeveloped country, with asmall proportion of the population employed in modern industry,


10

and large, low-productivity, agricultural and service sectors. Wagesand incomes are low (except for a small elite). Agriculture mainlyconsists of small peasant holdings, except where there areplantations producing for export. These peasant farms are nolonger self-sufficient ‘subsistence’ holdings, but are integrated intothe market system. Foreign trade generally accounts for a ratherlarge fraction of total national income, with imports of capitalgoods, intermediate products and raw materials paid for by exportsof primary products or labour-intensive manufactures. Exportearnings also have to finance outflows of dividends, interest androyalties. Underdeveloped countries generally trade with advancedcountries and not with each other. This pattern is clearly quiteunlike that of an ‘untouched’ pre-capitalist economy, and is theresult of incorporation into the world capitalist system. By the lastquarter of the century, some underdeveloped countries wereindustrializing rapidly, and moving towards the structure of atypical advanced country, while others were stagnating.

The class structure of underdeveloped countries in the mid-twentieth century was distinctively different both from that of a pre-capitalist society and from that of the advanced countries, thoughin some places it was changing fairly rapidly towards the pattern ofthe developed capitalist countries. The small scale of industry andits domination by foreign firms with labour-saving productionmethods meant that the industrial working class and localindustrial capital, important forces in advanced countries, weresmall. In their absence, the system was dominated by localrepresentatives and affiliates of multinational companies, bytrading interests and by landlords. The largest popular classes werethe peasantry and the urban ‘lumpenproletariat’ of unemployed orcasually employed workers.

Advanced and underdeveloped countries, then, arecomplementary halves of a very unequal world system, the productof a process of development stretching back centuries. At differentstages in its evolution, and in different areas, it has taken verydifferent forms. A complete theory of imperialism must account forall of them.

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1.2 HISTORICAL MATERIALISM

The writers surveyed in this book share a common set ofassumptions. All assigned a central role to the evolution of theeconomic system, and all agreed that imperialism must be explainedin terms of the development of capitalism. This approach derives,of course, from Marx. In this section I will briefly summarize someof the elements of Marx’s method, historical materialism.

Marx observed that production is always social; RobinsonCrusoe is a myth. Seen from a technical, physical point of view (theforces of production) or in terms of the actual activity of work (thelabour process), production is the activity of human beings workingin the natural environment to modify it to meet their needs. As asocial process, however, it also involves relations between people,the (social) relations of production, which govern access to themeans of production and the use of the product. These relations arenot a matter of deliberate choice; the organization of production in,say, Europe today is not the result of a conscious decision that wage-labour in capitalist factories is a better system than the serfdom ofthe Middle Ages or the slave system of Antiquity. It is the product ofa long process of historical evolution. Marx argued that the analysisof society must start from the structure of social relations, not fromindividual choices or motivations:

In the social production of their existence, men enter intodefinite, necessary relations, which are independent of theirwill, namely relations of production corresponding to adeterminate stage of development of their material forces ofproduction. The totality of these relations of productionconstitutes the economic structure of society, the realfoundation on which there arises a legal and politicalsuperstructure and to which there correspond definite forms ofsocial consciousness. The mode of production of material lifeconditions the social, political and intellectual life-process ingeneral. (Marx 1976: 3)

Marx’s assertion that the economic ‘foundation’ ultimatelygoverns the ‘social, political and intellectual life-processes in


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general’ is one of the most controversial aspects of his work. It doesnot seem to me to be useful to discuss it at a general level; the test iswhether it can be justified by detailed analysis in particular cases. Ipropose to treat it as a working hypothesis, adopted for purposes ofargument.

Marx insisted on the need for abstraction. Society is too complexto be grasped as a totality, an integrated whole, in a single step.Instead, we must isolate the simplest and most fundamental socialrelations and build up an abstract representation of how they workand how they fit together. Concepts developed in this way can thenbe used to construct an analysis of the real (or ‘concrete’) world.However, a single set of abstract concepts will not serve for theanalysis of all societies. Marx praised the classical economists (ofthe late eighteenth and early nineteenth centuries, notably Smithand Ricardo) for recognizing the need for abstraction, but criticizedthem for applying concepts appropriate to the analysis of thecapitalist economies of their time to all periods of history, failing torecognize the historical specificity of capitalism. Different stages ofdevelopment are characterized by particular, different structures,and a separate process of abstraction is needed for each. A mode ofproduction, in the abstract, is a simple, basic structure of socialrelations that is the starting point for the analysis of a particularstage of history. It is essential to Marx’s approach that there are onlya limited number of these basic forms.

Each mode of production (except the simplest, the primitive-communal, and the highest, the future communist mode) defines apair of opposed classes, a class of producers exploited by a non-producing class. The relation between these two classes is thecentral, defining feature of the mode of production. At this level ofabstraction, classes should not be thought of primarily as groups ofpeople, but as opposing positions within a structure of socialrelations. In particular, a class cannot be conceived of in isolation,since it only constitutes a class by virtue of its relation to anotherclass; there cannot be employers without employees, slave-ownerswithout slaves, and so on.

Marx’s original idea was simple and elegant. The various modesof production are successive stages in the history of human society.Each has its own structure and can ‘reproduce’ itself, that is, it can

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maintain both the forces of production (by replacing used-up meansof production, and so on) and the relations of production (byperpetuating the subordination of one class to another). Themechanisms of reproduction differ, of course, between differentmodes. The stability of each mode, however, is only relative; eachgenerates development of the forces of production and, in theprocess, brings about changes in its own functioning that lead in theend to a breakdown of the existing structure and its replacement bythe next in the sequence.

At a certain stage in their development, the material productiveforces of society come into conflict with the existing relations ofproduction. . . . From forms of development of the productiveforces these relations turn into their fetters. At that point an eraof social revolution begins. . . . In broad outline, the Asian,ancient, feudal and modern bourgeois [capitalist] modes ofproduction may be designated as progressive epochs of thesocio-economic order. (Marx 1976: 3-4)

Society, in this account, has evolved from a (rather nebulous)primitive-communal stage, through the ancient and feudal periods,into the capitalist societies of Marx’s (and our) time, which will inturn be replaced by communism. The ancient mode is defined by theopposition between slaves and free, slave-owning citizens, while thefeudal mode, in its classic form, involves production for local use bya class of unfree peasants or serfs who control their own subsistenceplots, but are compelled, by extra-economic coercion, to support aclass of feudal landlords.

The most frequently studied mode of production, the only onethat Marx analysed in detail, is the capitalist mode, characterizedby (1) generalized commodity production, production for themarket by many distinct and uncoordinated units of production,together with (2) polarization of wealth, so a class of owners of themeans of production confronts a class of free but propertylessworkers. Ownership of the means of production excludes non-owners (workers) from production, except on terms acceptable tothe owners. Workers have to sell their labour-power (their capacityto work) to capitalists in return for wages, which they spend on the


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goods they need to live. Marx’s analysis of capitalism is discussed inmore detail in chapter 2.

Marx recognized that non-European history could not be fittedinto this ‘Eurocentric’ succession of stages, and he introduced theAsiatic mode (discussed further in chapter 2) to deal with thisproblem. The point of the Asiatic mode is that it does not develop ina way that leads on to further stages, but tends to persist unlessdisrupted from outside. He also admitted that the succession ofstages could be broken by outside influences, especially byconquest.

In all conquests there are three possibilities. The conqueringnation subjects the conquered nation to its own mode ofproduction . . .; or it allows the old mode to remain and iscontent with tribute . . .; or interaction takes place, which givesrise to a new system, a synthesis. . . . In all cases the mode ofproduction – whether that of the conqueror or of the conquerednation or the one resulting from the fusion of the two – is thedeterminant of the new distribution that occurs. (Marx 1976:27)

A real society cannot, in any case, be reduced to a single abstractmode of production. Marx argued that: ‘In every social formationthere is a specific kind of production that predominates over all theothers, and whose relations therefore determine their rank andinfluence. It is a general illuminant tingeing all other colours andmodifying their specific features’ (1976: 39). Relationscharacteristic of several modes of production may be combined in a‘social formation’ with one predominating. This idea has beenrevived recently (see chapter 10). Among other advantages, it makesa place for the ‘petty-commodity’ mode of production (productionfor the market by independent producers who own their own meansof production), which has never predominated, and thereforecannot appear in a list of stages.

Once we regard modes of production as basic forms oforganization which can be combined and elaborated in many waysin different historical circumstances, the range of possibilitiesbecomes almost infinite. A limited number of modes can be

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analysed carefully in (conceptual) isolation, then complications canbe built in to analyse a rich variety of real situations. This is thescientific method; the discovery of simple ideas to elucidatecomplex problems.

What Marx left, in short, was not a complete interpretation ofhistory, but a fragmentary outline of European history, an analysisof the capitalist mode of production, and some tantalizingly briefindications of how his analysis could be extended. It would befoolish to treat Marx’s writings as holy writ. In the study ofimperialism, a central problem is to analyse the interactionsbetween initially very different societies, with different dominantmodes of production. Marx’s few writings on India and Ireland(discussed in chapter 2 below) are not particularly helpful, but hismethod has proved very fruitful, as I hope to show.

In an analysis of imperialism, the actions of (capitalist) statesmust play an important role. It is almost an axiom of Marxist theorythat the state acts to defend the interests of the ruling class (thedominant exploiting class). There are many statements to this effectin Marx’s writing, although he presented very little detailed analysisto support it. The state was one of the (many) topics he planned towork on and write about, but never managed to reach.

It is fairly easy to see why the state should act to preserve thebroad outlines of the existing social system. The ruling class isnormally well organized to defend its interests, and the higher levelpersonnel of the state (politicians, bureaucrats, military officers,etc.) have a clear interest in preserving the existing stateorganization, which could hardly hope to survive a wholesalechange in the social order. In any case, a failure to meet the essentialneeds of the dominant mode could only result in chaos andeconomic regression in the absence of a positive alternative.Support for the existing order does not imply unthinkingconservatism. On the contrary, it requires constant adaptation tochanging circumstances, and may mean acting against the interestsof particular sections of the ruling class. It does not follow either,that the state will succeed in this task; circumstances mayoverwhelm it, and the historic role of stupidity and error should notbe underrated.


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There remain many alternative policies consistent withpreserving the system. An assertion that the state acts in the interestsof the ‘ruling class’ is not self-evident, and may not even bemeaningful. There are always, in practice, divisions of interestwithin the capitalist class, so the interests of the class as a whole arenot clearly defined. Some Marxists appear to believe in a specialprovidence which ensures that state policies always coincide withthe ‘objective requirements of expanded reproduction’, orsomething of the sort. This is ridiculous; policies are the outcome ofclashing sectional interests within and across class boundaries, in aparticular political and ideological structure. The state, it is oftensaid, has a certain ‘relative autonomy’. Some work has been doneon these lines, but the construction of general theories is at a veryearly stage, leaving something of a gap in the theory of imperialism.In most of the theories discussed below, the focus is on an economicanalysis which ‘explains’ policies by showing that they serve theinterests of (major sections of) the capitalist class. I shallconcentrate on the economics of imperialism, following the generaltrend of the literature. Economic issues are, at the least, animportant part of the story.

1.3 THEORIES OF CAPITALISM AS A WORLD SYSTEM

Marxist theories of the development of capitalism on a world scalefall into two groups: those that concentrate on the progressive roleof capitalism in developing the forces of production, and those thatpresent capitalism as a system of exploitation of one area byanother, so development in a few places is at the expense of the‘development of underdevelopment’ in most of the world.Capitalism, according to the first approach, creates the materialpreconditions for a better (socialist) society, as well as the classforces that will bring it about, while the second approach suggeststhat it is precisely the failure of capitalism to generate economicdevelopment that makes revolution necessary. The historical recordsuggests that there is an element of truth to both of these opposedpositions; capitalism has generated massive technological and

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economic advances and also enormous geographical disparities ineconomic development.

The first of these views is broadly that held by the ‘classical’Marxists, from Marx to Lenin and his contemporaries. It has beenstrongly revived in recent years. According to this account, thedevelopment of each country is determined primarily by its internalstructure, specifically by the nature of the dominant mode ofproduction. Capitalism, a system in which free wage workers areemployed by competing firms, tends to generate economicdevelopment, while other modes do not (at least on the same scale).External forces have their effect primarily by altering theorganization of production. Competition is at the heart of aclassical Marxist analysis of capitalism. The largest, most efficientfirms with the newest capital equipment are the most profitable,and can increase their lead, while weaker firms fall behind and theweakest are eliminated by bankruptcy or takeover. The threat offailure forces firms to maximize profits, to reinvest profits forexpansion, and to seek out new methods of production, newmarkets, and new sources of supply. In pre-capitalist modes ofproduction, by contrast, the exploiting class must, above all,maintain the basis of the extra-economic coercion which theyexercise over the producers. As a result pre-capitalist systems arerelatively static, dominated by custom, with the (potentiallyinvestable) surplus redirected into non-productive channels.

The expansion of capitalism constantly expands the demand fornatural resources (minerals, land, etc.); this is one motive behind thegeographical expansion of capitalism. Even with a static demand,development of transport and the search for cheaper sources ofgoods will tend to draw new areas into the capitalist orbit. Thesearch for cheap labour is yet another motive for geographicalexpansion.

In the classical Marxist account, grossly oversimplified,capitalism emerged first in a few centres, generating capitalaccumulation and development there, and opening up a lead overthe rest of the world without necessarily taking anything from it(though capital will always take what it can get). Capitalism spread,starting the same process in other areas. Different parts of the worldare runners in the same race, in which some started before others.Any advantage gained by one at the expense of others is incidental.


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The alternative view has been developed since the Second WorldWar, notably by Frank and Wallerstein, as a response to theapparent failure of capitalist development in many parts of theworld. In this view, the unit of analysis must be a world system, withdiffering geographical areas or nation states as mere componentparts. Capitalism is not defined by a specific relation betweenclasses, but by production for profit in a world system of exchange,and by the exploitation of some areas by others. The ‘metropolis’ or‘core’ exploits the ‘satellites’ or ‘periphery’ by direct extraction ofprofit or tribute, by unequal exchange, or by monopolistic controlover trade. In the periphery, ruling classes owe their position to theirfunction as intermediaries in the system of exploitation, so theyhave an interest in preserving it and in preserving the correspondingpatterns of production. Underdevelopment is not a state of originalbackwardness; it is the result of the imposition of a particularpattern of specialization and exploitation in the periphery. Withinthe world system, different forms of ‘labour control’ may be used:forced labour, wage-labour, slavery, and so on. The class structuresof different nations, and particular forms of exploitation inproduction, are merely results of the place of the areas concerned inthe world system, not the key determining factors (as they are in aclassical Marxist analysis).

In this approach, oversimplified, capital accumulation is seen notas a precondition for genuine, qualitative advances in the level andmethods of production, but rather as a redivision of a fixedmagnitude, a transfer of resources from the exploited periphery tothe centre. Development in some areas and the ‘development ofunderdevelopment’ in others are opposite sides of the same coin.

These two views involve quite different readings of history. In theclassical Marxist view, capitalism started off in a few places and hassince spread out geographically in a process of internationalizationof capital, and has evolved through a succession of stages, with keyturning points in the industrial revolution and when large-scaleexport of capital (not goods) started. According to Frank andWallerstein, by contrast, capitalism as a world system dates fromthe sixteenth century, and has remained essentially unchanged eversince. The classical Marxists saw capitalism in dynamic terms,while their opponents saw it as a basically static system ofexploitation.

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The contradictions between these two views should not beoverstressed, though they are very real. The world economy is acomplex whole in which relations of production and exploitationexist both within and between nations. It may not matter muchwhether we say that underdevelopment is the product of externalinfluences (which also determine a certain class structure andorganization of production), or that underdevelopment is caused bya certain class structure and organization of production (which maybe in whole or part the result of external influences). When we getto a more detailed level of analysis there are many theories that cutacross this simple classification. It is, nevertheless, a helpfulpreliminary way of ordering the material.

The definition of the term ‘underdevelopment’ differs accordingto the approach adopted. In the classical view, underdevelopment issynonymous with backwardness, with an early stage ofdevelopment. Frank and his followers, on the other hand, argue thatan isolated country could not be called underdeveloped, asunderdevelopment is defined by incorporation into a world systemin a subordinate position. Whichever definition is adopted, there islittle doubt as to which category to put any particular country in, sothere is not likely to be much confusion. I shall use the termdescriptively; an underdeveloped country is one that shows thegeneral structural features of underdevelopment described insection 1.1 above.

Marx (chapter 2) concentrated on a closed and wholly capitalisteconomy in his main theoretical work. In a rather less formal way,he analysed the origins and expansion of capitalism within a singlenation state. His importance to the theory of imperialism isprimarily that he established a basic framework of analysis thatother writers have built on. His articles on India make it clear thathe saw British rule, however brutal, as ultimately progressive,because it laid the foundations for subsequent capitalistdevelopment.

Luxemburg (chapter 3) developed Marx’s picture of theexpansion of capitalism into the pre-capitalist societies thatsurround it. She advanced two explanations for this expansion. Thefirst is that capitalist economies suffer a chronic problem of‘realization’, that is of selling the products produced for sale, andmust therefore seek markets abroad. This idea recurs in a variety offorms in the history of imperialism, and I shall refer to it as ‘under-


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consumptionism’ (though Luxemburg’s variant of it does notexactly fit the term). I shall argue that under-consumptionism ismistaken. She also argued that competitive pressures lead toexpansion, in search of raw materials and cheap labour, and here Ithink she is right. In either case pre-capitalist ‘natural’ (non-market)economies cannot be penetrated by simple market competition, forlack of markets to compete in, and must therefore be broken openby force.

Hobson (chapter 4) was not a Marxist, but he deserves a mentionin a survey of Marxist theories because his work has influencedmany Marxist writers. He presented one of the first coherentaccounts of imperialism (before Luxemburg). His version of under-consumption is the prototype of many, and he was one of the first tolink the scramble for Africa and the intensified inter-imperialistrivalry at the end of the nineteenth century to the development ofmonopoly; this became a major theme of Marxist writing onimperialism.

Hilferding, Bukharin and Lenin (chapters 5 and 6), the mainauthors of what I will call the ‘classical Marxist theory ofimperialism’ (since Marx did not discuss imperialism as such),wrote immediately before and during the First World War. Ineconomic life, the main change since Marx’s time had been thedevelopment of monopoly, fulfilling his prediction that thecompetitive process, with its constant elimination of smaller andweaker firms, would generate a tendency to monopoly. It remained,however, to analyse the results of this development. At the sametime, there was a scramble for colonies, and intense antagonismsemerged between the main capitalist powers. All three writersstressed the formation of monopolies on a national basis, and theintensification of competition on a world scale between nationalgroupings of capital. At the same time, they predicted anacceleration of capitalist development in backward areas of theworld.

Hilferding’s main contribution (chapter 5) was the concept of‘finance capital’, the fusion of industrial and financial capital intohuge interlocking groups. These groups do not compete with eachother by price cutting: they enlist state support to gain control ofwhole industries by financial and political means. Most of theelements of a theory of inter-imperialist rivalry were worked out by

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Hilferding, but his main focus was on the internal development ofcapitalist economies.

Bukharin (chapter 6) transformed Hilferding’s analysis by settingit in the context of a world economy in which two tendencies wereat work. The tendency to monopoly and the formation of groups offinance capital is one, and the other is an acceleration of thegeographical spread of capitalism and its integration into a singleworld capitalist economy. Blocs of finance capital form on anational basis, because of their links with national states.Competition thus becomes competition between ‘state capitalisttrusts’, with annexation and war as means employed in thecompetitive struggle. Lenin’s pamphlet on imperialism (alsodiscussed in chapter 6) follows Bukharin in most respects whileavoiding the main issues of theory, and adding elements taken fromHobson. Lenin insisted that imperialism should be regarded as astage of capitalist development, the monopoly stage, rather thanbeing a policy of capitalist states or an aspect of the relationsbetween capitalist states. This terminology can cause someconfusion, since other writers (following everyday usage) used theterm to refer specifically to international relations of dominanceand exploitation. His rather obscure treatment of the reasons forcapital export, which could be interpreted in terms of Marx’s theoryof the falling rate of profit, or in terms of under-consumptionisttheories, has also caused confusion. Altogether, Lenin’s pamphlethas been treated with a reverence it does not deserve.

The work of Baran (chapter 7) represents a turning point in thetheory of capitalist development on a world scale. The classicalMarxists, from Marx to Lenin, had expected full capitalistdevelopment, in due course, throughout the world. Baran arguedthat the destiny of the underdeveloped countries was distinctivelydifferent from that of areas that developed at an earlier date.Monopoly, he argued, leads to restriction of output and investment,and hence to low growth (in all parts of the world). In advancedcountries output is high, and high monopoly profits depressworkers’ consumption, so there is a chronic shortage of demand(this is almost identical to Hobson’s argument). In underdevelopedcountries the ‘surplus’ is partly absorbed by the luxury spending ofthe ruling class, but much of it is transferred to the advancedcountries (as profits), where it contributes to the problem ofabsorbing the rising surplus. Monopoly thus transforms capitalism


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from a force for development into a cause of stagnation, both inadvanced and in underdeveloped countries. In underdevelopedcountries, however, there was no competitive stage, so they are‘frozen’ at a low level of production and income.

Marxist and radical writings of the 1960s and 1970s weredominated by the idea that capitalism blocks development in theThird World, because the countries of the ‘periphery’ are dependenton the countries of the ‘centre’, a line of argument that becameknown as dependency theory (chapter 8). Frank was a central figurein the resulting debates. I shall argue that his theories have crucialweaknesses. Frank’s conception of capitalism as a world-widesystem of monopolistic exchange and exploitation has already beendescribed. The main criticism of this approach is that it ignores therole of relations of production in determining both the dynamicsand the class structure of the system. Amin incorporated a formalanalysis of international exchange into an account of accumulationon a world scale. He argued that the impact of developed capitalismon less developed or pre-capitalist areas imposes a pattern ofspecialization that limits future development. His version ofdependency theory improves on its predecessors by including anexplicit treatment of ‘unequal specialization’. Importantweaknesses, however, remain. The determinants of thedevelopment of productivity in different areas remain unclear, andhis version of dependency theory, like others, has under-consumptionist elements which seem to me to be mistaken.

Emmanuel’s theory of ‘unequal exchange’ (chapter 9) has starteda new line of its own. He too saw capitalism as a world system ofexploitation through exchange, but in his model surplus can betransferred through trade in competitive markets, withoutmonopoly. An essential component of Marx’s theory of a closedcapitalist economy is the establishment of a single general rate ofprofit and a corresponding set of ‘prices of production’. Marxisttheories of the world economy had no corresponding linkagebetween the analysis of production and of exchange, untilEmmanuel provided a theory of the determination of prices ofproduction in a world economy. The main assumption is thatcapital is mobile internationally, while labour is not. The maincriticism of his analysis is that certain key variables (the pattern ofspecialization, productivity, wages) are not adequately explained.

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He made a useful contribution to a theory of the world economy,but claimed too much for it.

There have also been a number of debates on more specific issues,generally revolving around the differences between the Frank–Wallerstein position and the newly revived classical Marxistapproach. One major area of debate surrounds the concept of amode of production, and its application to contemporaryunderdeveloped countries (chapter 10). The central point at issuehere is whether the internal structure of underdeveloped countriescan be conceptualized in terms of the persistence of pre-capitalistrelations of production and, if so, whether this is cause orconsequence of their backwardness. A second area of debate centreson trends in the relative standing of different capitalist states(chapter 11). In the post-war period, most Marxists assumed thatthe United States would maintain or increase its dominance as theprincipal imperialist power, and that underdeveloped countrieswould inevitably become relatively, if not absolutely, poorer andmore thoroughly subordinated as long as they remain part of theworld capitalist system. Capitalism was seen as a stable, self-reinforcing global system of inequality. This view has now beenundermined by experience; American hegemony has crumbled, andthere has been rapid capitalist development in some parts of theunderdeveloped world.

Taken together, the writings surveyed in this book seem to me toprovide most of the makings of a coherent theory of the evolutionof capitalism on a world scale, though such a theory has yet to beworked out in detail. What follows is my guess at the form it mighttake. It is only a tentative outline; to go further would go beyond thescope of this work.

The ‘mercantile’ period was characterized by very looseintegration of the world economy, so developments in differentparts of the world were determined primarily by the dominantmode of production in each area. Transport costs were high, long-distance trade was mainly in luxuries and both capital and skillswere relatively immobile. Europe advanced because Europe wasbecoming capitalist. Elsewhere, European military power had itseffect mainly by transforming the mode of production, eitherinstalling (pre-capitalist) forms of exploitation from the outside (asin Latin America) or clearing the ground for future capitalistdevelopment (as in North America).


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The nineteenth century was a period of transition. The emergingworld economy was still rather loosely integrated, and theemergence of new centres was still possible where internalconditions were ripe and resolute state support was forthcoming.At the same time, the development of capitalism in Europe andNorth America was breaking up mercantile monopolies, bringingdown transport costs, and inaugurating a new stage ofdevelopment. As the world economy became more closelyintegrated, the developed industrial centres had a crucialadvantage, since productivity levels were rising while wagesremained relatively low. As a result, they had a crushing costadvantage in all the main lines of industrial production, andrelatively backward areas were confined to natural-resource-linkedactivities. The advantages of the more developed areas could noteasily be transferred, since skills were mainly in the hands of theworkers, and capital tended to flow towards concentrations ofskills. The need for a network of specialized services and suppliershad a similar effect. These ‘external economies’ were especiallyimportant in the epoch of competitive capitalism, but remainimportant now.

Monopoly capital, however, tends to ‘internalize’ externaleconomies by taking over external suppliers and by codifying androutinizing skills. Modern multinational firms are able to transfertechnology to new locations with relatively low additional costs. Atthe same time, wage levels in advanced countries have been rising.The cost advantages of established industrial centres have beeneroded on both counts. There is now a clear tendency forproduction to be shifted to low-wage areas in underdevelopedcountries, although it will take a very long time for this tendency towork its way through the whole range of industries.

It does not follow that the whole of the Third World can lookforward to complete capitalist industrialization, since theemergence of new poles of development will intensify competitionand eliminate weaker competitors. Equally, the mass of thepopulation in newly industrializing countries may not gain muchfor a long time. Capital-intensive methods of production hold downthe demand for labour and the resulting unemployment holds downwages. The prospect is one of uneven development as betweendifferent areas, accompanied by working-class poverty – very muchwhat Marx predicted over a century ago.

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2

Marx

Marx did not use the word ‘imperialism’, nor is there anything in hiswork that corresponds at all exactly to the concepts of imperialismadvanced by later Marxist writers. He did, of course, have a theoryof capitalism, and of its development, and his work containsextensive, if rather scattered, coverage of the impact of capitalismon non-European societies. Unlike many of his successors, Marxsaw the relative backwardness of the non-European world, and itssubjection to European masters, as a transient stage in theformation of a wholly capitalist world economy. Marxist writershave drawn on various elements of Marx’s theory in their work onimperialism. They have not, in general, based their analysis ofimperialism on Marx’s writings on colonies.

I shall first set out, very briefly, Marx’s theory of a whollycapitalist system. Marx argued that capitalism could in principleexist and develop on its own, without needing to expand intosurrounding pre-capitalist societies. In fact, however, capitalismemerged in a wider pre-capitalist world, so the next step will be tolook at Marx’s theory of the origins of capitalism, and of itsexpansion at the expense of other modes of production. Finally, Ishall survey Marx’s writings on colonies, and in particular thefamous articles on India. The first two sections, then, deal with thecapitalist mode of production in the abstract, the rest of the chapterwith its insertion into social formations that are not whollycapitalist.

A preliminary comment on terminology: Marx did not have ageneric term to describe the rule of a more advanced nation stateover a more backward area. I have used the term colonialism, whichhas been widely adopted since. When Marx himself used this term


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it was usually to refer to European settlement in areas from whichthe indigenous inhabitants had been expelled (such as Australia andAmerica).

2.1 CAPITALISM

The heart of Marx’s life work was the analysis of the capitalist modeof production, contained in Capital, volumes I-III (Marx 1961,1957, 1962, cited below by title and volume number). Thecentrepiece is a theory of a closed, homogeneous, capitalisteconomy. Labour-power has a single price, governed by the value oflabour-power, and, when prices of production are introduced (inthe third volume), there is a single general rate of profit whichaccrues to all capitals. This is an abstraction, of course, andthroughout the three volumes Marx used examples to link theabstract theory to a far more complex reality. Within the theory,though, there is no space for any differences in economic conditionsbetween different countries. Marx’s conception of the capitalistmode of production is diametrically opposed to that of dependencytheorists like Frank, for whom the centre–periphery relation is anessential feature of capitalism.

In this section, I shall outline the basic theory very briefly, withthe focus on key concepts used by later writers. This is not a text onMarxist economic theory: there is a substantial literature on thesubject for those who wish to read more (e.g. Brewer 1984; Foley1986; Howard and King 1985).

Capitalism is a particular form of commodity production,production of goods for sale on the market. This form of economyexists where there are many independent producers who producegoods for sale rather than for their own use. Marx distinguishedbetween the use value of a commodity, the use to which it can be put,and its exchange value, what can be got in exchange for it. Theproduction of use values is absolutely essential to the survival of anysociety, but in a commodity-producing system this is obscured bythe fact that the producer is interested only in the exchange value ofthe product.

Marx argued that exchange values are explained and determinedby (labour) values, where the value of a commodity is defined as the

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socially necessary labour time (measured in hours), directly orindirectly required to reproduce it. The labour theory of value hasbeen the subject of much debate (e.g. Morishima 1973, 1974, 1976;Steedman 1975, 1977; Himmelweit and Mohun 1978; Wright1979). The difficulty in using labour values is that goods do not, infact, exchange at their values in a developed capitalist economy;they exchange at market prices which fluctuate around prices ofproduction (see below). In cases of joint production and in any butthe simplest cases involving fixed capital, values are hard to definesatisfactorily, and are liable to come out negative, or to fail to addup correctly (Steedman 1975, 1976, 1977). Very few theories ofimperialism depend heavily on the labour theory of value, so labourvalues can be treated simply as a convenient way to set out Marx’stheory. The main propositions could be restated in terms of othertheories of price, but I shall use labour values, since that was howMarx did it. The heart of Marx’s theory, his account of the socialrelations of capitalism, does not depend on the labour theory ofvalue.

Marx then asked: what is the source of the surplus value (roughly,profit) which accrues to a capitalist? He found the answer in thespecific social relation which links a wage worker with a capitalistemployer. The worker, he said, sells his labour-power, his capacityto work, rather than his labour. The distinction between labour-power and labour is crucial to the labour theory of value (the labourvalue of labour would be a nonsense), but it also reflects a centralfeature of capitalism; the actual work process, the conversion oflabour-power into actual work itself, is carried out under theauthority of the new owner of labour-power, its buyer, the capitalist.The capitalist also buys means of production (materials,equipment, etc.) for the worker to work with.

The value created by labour corresponds to the number of hoursworked in (say) a day (given average conditions of production), butthe wage paid by the capitalist corresponds to the value of labour-power, that is, the labour required to reproduce a day’s labour-power, which is, in turn, the value of the commodities needed for thesubsistence of the worker (and his family, since the worker must bereproduced). If the value created in a day exceeds the value of a day’slabour-power then there is surplus value which the capitalist canpocket when he sells the product. In terms of the relationshipbetween the workers as a whole and capital as a whole this amounts


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to saying that profit (or surplus value) exists when the workersproduce more than they get. Surplus value, in other words,corresponds to a surplus product. For an individual capitalist,however, profit (or surplus value) depends on prices (or values),since the commodities individual workers get are not the same asthose they produce; where the goods produced and consumed arenot the same we cannot subtract the one from the other unless theycan be reduced to a common unit. For an open economy the sameproblem exists when workers produce goods for export andconsume, in part, imported goods.

Marx’s theory of the wage (or value of labour-power) issomething of a difficulty. He stated that the commodities needed byworkers are not determined by purely physiological needs, thoughthese set a minimum, but also contain a ‘historical and moral’element. In other parts of his work, notably the pamphlet Wage,Price and Profit, there are elements of a theory of the determinationof wages by bargaining power. What is clear is that if wages rise sofar as to reduce profits below some minimum level, there will be acessation of production and a crisis. This sets an upper limit towages which ensures the existence of profit.

Capital, in this framework, is ‘value in process’, money orcommodities being used to produce surplus value. An individualcapitalist’s wealth is first in the form of money, then of means ofproduction and labour-power, then of the commodities produced,and finally in the form of money, from the sale of the product, readyto start the cycle again. (In practice these stages overlap.) Capital isdefined by the cycle as a whole. In measuring the capital involvedwe count the value of money, work in progress, means ofproduction and final commodities. This differs from the definitionof capital used in non-Marxist economics in two ways: the latter isnarrower, in only including means of production, but wider inincluding means of production regardless of the social context. ForMarx wealth is only capital if it is used by capitalists to producesurplus value in a capitalist system. I shall use this definitionthroughout. To put it another way, conventional economics treatscapital as a technical requirement of production. Marx saw it as asocial relation which defines a specific mode of production.

We should pause here to consider the status of the two ‘spheres’of production and circulation (exchange). Both are integral partsof the circuit of capital, the cycle described above. A capitalist

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economy consists of many separate enterprises, each controlled bya capitalist owner, linked together by market exchange, which isnot controlled by anyone; capitalist production is anarchic and isgoverned by the blind working of economic laws independent ofthe will of any individual. The circuits of different capitalsintertwine with each other: each buys means of production fromothers, while workers buy means of subsistence from onecapitalist with wages paid by another. Capitalist production as awhole includes many separate production processes and theprocesses of exchange that link them. Both are integral parts ofproduction as a social process. Some Marxists have tried to arguethat production (narrowly defined) is in some sense the primaryelement and circulation secondary. In view of the discussionabove, this view will not stand up.

It is possible for part of production to be carried out undercapitalist relations of production and part under pre-capitalistrelations, linked by exchange, as in the relation between slaveplantations in America and the Lancashire cotton textile industry atthe time of the industrial revolution. Some writers describe this aswholly capitalist production (with an unorthodox form of labourdiscipline on the plantations), others as a relationship between twodifferent modes of production. The question seems, at least in part,semantic. The important point is that there is a social process ofproduction encompassing both capitalist and pre-capitalistrelations of production, an important possibility in systems ofcommodity production. This, however, is to jump ahead; myconcern at the moment is with a wholly capitalist system.

The essential character of a capitalist system comes out mostclearly in Marx’s discussion of the reproduction of the system. Forsimplicity, he used the device of simple reproduction, in which thesystem is reconstituted exactly as before after each cycle ofproduction, before moving on to reproduction on an extended scale(also called expanded reproduction, reproduction on aprogressively increasing scale, and so on), where part of profit isaccumulated, as new capital, and the system grows. Note also thatthe idea of a simple ‘period of production’, starting with means ofproduction, wage goods for workers’ consumption, and so on, andending when they have been used up and replaced by newlyproduced goods, is another analytical fiction which simplifies thestory without affecting the principles involved.


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Consider first the relation between workers and capital. At thestart of a period of production, workers have no wealth, ‘nothing tosell but their labour-power’, and therefore have no option but tolook for a job. They cannot produce on their own account, sincethey cannot afford to buy means of production. The capitalist paysthem a wage, enough to cover their (socially determined) needs. Atthe end of the period of production the workers have spent theirwages, and are back where they started, forced once again to seek ajob. Throughout, Marx assumed that there is a reserve army oflabour, a pool of unemployed workers competing for jobs andkeeping wages down. If expansion of the system absorbs all theseunemployed workers, the threat of unemployment no longer holdsdown wages and maintains labour discipline; a crisis follows,reducing production, promoting labour-saving investment, andreconstituting the reserve army. Capitalists, on the other hand, startwith purchasing power (money capital) sufficient to pay wages(variable capital) and buy means of production (constant capital).At the end of the process they get enough revenue to replace theoutlay, plus a surplus (profit), which can be used entirely for theirown consumption (simple reproduction) or partly for newinvestment (expanded reproduction). Starting, then, from asituation in which owners of commodities (capitalists) confrontpropertyless workers, the cycle of production ends with thereproduction of the same confrontation between the same twoclasses, ready for the cycle to start again. Where capitalism camefrom in the first place, is a different question, to be taken up later.

To ensure the reproduction of the system, it is not enough thatcapitalists should get surplus value. Capitalism is a species ofcommodity production, so production is carried out by manyseparate capitals with no central co-ordinating plan. The right mixof use values (means of production, necessities of consumption andso on) must be produced. Marx analysed this problem in the finalchapters of Capital II, in terms of the exchange between twodepartments of social production: department 1, industriesproducing means of production; and department 2, producingconsumer goods. He showed, using numerical examples, orschemes of reproduction, that there is a certain relation between theoutputs of the two departments consistent with simplereproduction, and another relation, depending on the rate ofaccumulation, consistent with extended reproduction. It is easy to

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see how this analysis could be pursued in more detail to determinethe necessary proportions between different branches ofproduction within each department.

One aspect of Marx’s analysis of reproduction which is veryrelevant to the theory of imperialism and which has caused endlessdebate is the question of markets. How can capitalists hope to sellall the goods they produce? There is an argument used by manyMarxist theorists, which I shall label under-consumptionism (seeBleaney 1976; a number of variants of under-consumptionism willbe discussed in later chapters, especially chapters 4, 7 and 8). In itssimplest form it goes like this: if the workers cannot afford to buythe whole product, who can the capitalists sell it to? In simplereproduction, Marx’s answer was that the capitalists consume thesurplus product themselves. This entails selling to each other, sinceeach specializes in the production of a particular product, butwishes to consume others. In a growing economy, capitalists stillexchange the surplus product among themselves, but buy means ofproduction for new investment instead of means of consumption,and the proportions between the two departments, 1 and 2, must becorrespondingly different. The argument is slightly complicated bythe assumption that wages are paid in advance; some of the newinvestment takes the form of wage payments to additional workers,who spend the money on consumer goods. The money used to carryout transactions is not a problem either, since it passes from hand tohand without being used up. At the end of each cycle it has returnedto its starting point, ready to circulate again.

The core idea of under-consumptionism is that consumerdemand is somehow more fundamental than demand for means ofproduction, that the latter only exists to provide for the former. It isoften argued (Hobson 1938, is a classic case) that if consumption is(say) static, because wages are constant, then there will be noincentive to invest. This is simply wrong, since investment can bedirected to industries producing investment goods (means ofproduction) as well as to the consumer goods industries. Consumerdemand has no special status in a capitalist framework; the bulk ofit is from workers, who will only be employed if they contribute toprofits, so both consumption and investment derive primarily fromprofit-seeking decisions by capitalists. If capitalists save and invest,more workers are needed, and total workers’ consumption goes up.


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It is possible that investment will be insufficient if profitprospects are poor. In this case, capitalists cut back on investmentand employment, reducing demand and setting off a chain reaction.On the other hand, when high profits are expected, the chainreaction works the other way round. Marx expected capitalism toevolve through a series of booms (which ensure the development ofthe forces of production) and slumps, or ‘periodic crises’. Theschemes of expanded reproduction show that it is possible inprinciple for demand to expand in line with supply, though it isequally possible for the system to suffer crises (as it does in practice).The explanation of crises must be sought in the determinants ofprofitability, not in any inherent problem of demand. I shall discussparticular variants of under-consumptionism as they arise, notablythose of Luxemburg, Hobson, and Sweezy. Under-consumptionistarguments are important in the theory of imperialism because theycan explain a search for external markets to make up for thedeficiency of demand at home.

2.2 THE DYNAMICS OF CAPITALISM

In Marx’s theory, surplus value is generated by the gap between thevalue produced by a worker, which is simply the length of theworking day, and the value of labour-power. Marx called the partof the working day equivalent to the value of the commodities theworker can buy with the wage, necessary labour; the rest is surpluslabour. Surplus value can be increased by lengthening the workingday. This is called absolute surplus value. It can also be increased byincreasing productivity in the industries producing wage goods (ormeans of production used in the wage goods industries), thusreducing the value of labour-power (in hours of labour equivalent)without reducing the actual commodities the worker gets. This isrelative surplus value. Looking at it another way, the surplusproduct that workers produce can be increased either by makingthem work for longer (absolute surplus value) or by improvingproduction methods so more is produced in the same time (relativesurplus value). Absolute surplus value has a limit, set by physicalexhaustion, while relative surplus value does not. Absolute surplus

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value is important in the early stages of capitalism, and in colonies,where working hours are forced up to the maximum and wagesdown to the minimum, while relative surplus value dominates inadvanced capitalism.

Constant efforts to cut costs are forced on capitalists bycompetition, the primary driving force in capitalism. Any newmethod of production which reduces costs (a technicalimprovement, or an ‘improvement’ in labour discipline) will bringextra profits to those who introduce it quickly, before the generalprice level has been forced down. Once it is generally adopted,competition forces prices down in line with costs, wiping out anyremaining high cost producers. Marx assumed (in general rightly)that large-scale production is more efficient than small-scale.Competition, therefore, forces capitalists to accumulate andreinvest as much as possible in order to produce on a large scale.Marx called growth through reinvestment of profits, concentrationof capital. Bigger firms will be better able to survive, especially inslumps, and will be able to buy out smaller firms. The growth of thescale of production by amalgamation of capitals is calledcentralization of capital.

Despite the constant increase in efficiency produced by theseprocesses, Marx asserted that there is a tendency for the rate ofprofit to fall; many Marxists have suggested that imperialism is aresponse to falling profits. Marx’s argument is as follows: let c standfor the value of means of production used, v for the value of labour-power and s for the surplus value generated. Then s/v is called therate of surplus value: surplus labour divided by necessary labour.The rate of profit, however is: s/(c + v), since capitalists relate profitto the total capital invested, in means of production and in thepurchase of labour-power. Now the profit rate, s/(c + v) = (s/v)/((c/v) + 1), dividing top and bottom by v. The fraction c/v which appearson the bottom of this expression is called the value composition ofcapital.

Marx defined the technical composition of capital as the ratio ofthe mass (physical quantity) of means of production to the mass oflabour employed. The value composition of capital is the ratiobetween their values. Marx said (Capital I: 612): ‘I call the valuecomposition of capital, in so far as it is determined by the technical


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composition and mirrors the changes of the latter, the organiccomposition of capital.’ However, he often seems to have used theterm ‘organic composition’ interchangeably with ‘valuecomposition’.

He claimed that c/v will rise as capital is accumulated,outweighing any rise in s/v (as a result of productivity increase), sothe rate of profit will tend to fall. This is the law of the tendency ofthe rate of profit to fall. He then introduced a number of counter-tendencies; s/v may rise, wages may be depressed below the value oflabour-power, and so on. The most important is the fact that ifproductivity is rising, the value of any given quantity of means ofproduction will fall, since less labour is required to produce it. Forthis reason, the value of the means of production used need not riseeven though the mass (physical quantity) does, so c/v need notincrease in value terms. The ‘falling rate of profit’ theory depends,essentially, on rapid technical progress in consumer goodsindustries, using an increasing mass of means of production,without corresponding technical progress in the production ofmeans of production. Another counter-tendency is foreign trade(Capital III: 232). Marx argued that capital invested in foreign trademay make high profits, for several reasons, including the possibilitythat the home country is more advanced and gains a super-profitjust as the first firms with an innovation do, the possibility thatlabour may be more productive in the home country without beinghigher paid (the opposite of Emmanuel’s argument, to be discussedlater), and the high rate of exploitation in colonies. These are aragbag of reasons with little theoretical backing; without anadequate theory of the world economy they can be nothing more. Inany case, the theoretical argument is at the stage of analysing aclosed and homogeneous capitalist economy, in which these factorshave no place.

The decisive argument is the cheapening of the means ofproduction, discussed above, since this cheapening is inherent in theprocess of capitalist development. There is no special reason toexpect the value composition of capital either to rise or to fall. It canin any case be shown that capitalists will only adopt new techniquesif they increase the rate of profit at the existing level of wages. Anytechnical innovation that reduces costs will also raise the general

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level of profits once it is in general use. (The classic proof is byOkishio 1961, 1963; see also Himmelweit 1974; Hodgson 1974;Bowles 1981; Roemer 1981; and Shaikh 1982.) Rejection of thefalling rate of profit is still controversial, though the argumentscited above seem decisive to me. It has large implications forMarxist theory, since many Marxists have predicted an automaticcollapse of capitalism because of falling profits. The allegedtendency for the rate of profit to fall has also been used to explaincapital export and hence imperialism, sometimes regarded as partof a process of ‘mobilizing the counter-tendencies’ to falling profits.The falling rate of profit is quite unnecessary to these arguments,since they amount to saying that capital seeks cheap labour and highprofits, which is sufficient explanation by itself.

Another quite distinct effect of competition is the formation ofprices of production (which will be dealt with in more detail inchapter 9). The basic idea is that competing capitals move from oneindustry to another in search of higher profits. Where profits arehigh, an inflow of capital lowers them by increasing supply anddepressing price. Relative prices must then deviate from values,since if prices were proportional to values, the rate of profit wouldbe high in industries with a low value composition of capital, andvice versa. Mobility of capital leads to the formation of a singlegeneral rate of profit.

This analysis enabled Marx to deal with commercial capital (ormerchant’s capital), a specialized part of capital which takes overfunctions of buying and selling from industrial capital. Accordingto the labour theory of value, surplus value arises in production, notexchange, so commercial capital does not produce surplus value. Itdoes, however, perform a necessary function, since purchase andsale of commodities are essential parts of the circuit of capital, andmust, therefore, receive a profit (from a difference between buyingand selling prices) equivalent to the general rate of profit.Commercial capital played a much more important role in theorigins of capitalism than in Marx’s analysis of a pure capitalistsystem.

Another functional fraction of capital is financial capital, whichperforms a rather heterogeneous collection of functions unified bythe fact that all involve handling money (as opposed to


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commodities), and by the fact that they permit a centralization ofmoney capital. Industrial and commercial businesses frequentlyfind themselves holding idle money balances. If a bank can collectidle money together it can economize on the actual money held, andput the rest to use by lending it out to other capitalists who aretemporarily short of money. The savings of individuals (retiredcapitalists, members of non-capitalist classes and so on) can also becollected and put to use.

The importance of these different fractions of capital (industrial,commercial, financial) is that they define different sections of thecapitalist class, which may have different interests. There are otherdivisions within the capitalist class, for example between small andlarge businesses and between capitals in different branches ofproduction (agriculture, industry, etc.). One of the functions ofpolitical activity and of the state is to arbitrate between thesedifferent interests.

Summarizing the argument so far, Marx defined the capitalistmode of production in terms of the relation between two classes,wage workers and capitalists, and demonstrated how a closedcapitalist system can reproduce itself on an expanding scale.Competition leads to capital accumulation, rising productivity, andconcentration of capital into ever larger units. The next step is toanalyse the emergence and development of capitalism in apreviously pre-capitalist world, and the functioning of the capitalistmode of production in social formations which contain othermodes as well.

2.3 THE ORIGINS OF CAPITALISM

Capitalism, once in existence, has a logic which can be captured byabstract theory, but its origins are a once-for-all process that mustbe explained in terms of specific historical circumstances. Since thedefining feature of capitalism, for Marx, is the relation between aclass of propertyless, free workers, and a class of private owners ofthe means of production, the essence of the problem is to explainhow these two classes came into being.

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Capitalism first emerged in Europe. It was transplanted, partlygrown, to colonies of European settlement (America, Australia,etc.) and developed independently in Japan. In the rest of the worldcapitalism came from outside as an alien growth introduced,frequently, at the point of a gun. Marx did not regard thisgeographical pattern as accidental. He argued that the prospects forthe development of capitalism depended crucially on the previousstructure of society, which differed in different parts of the world.Europe (and Japan; Capital I, ch. 27: 718n) was dominated by thefeudal mode of production, and most of Asia (particularly India andChina) by the Asiatic mode of production.

The decay of the feudal mode of production created a fertileenvironment for the growth of capitalism, while the Asiatic modedid not, because feudalism involved a form of private property inland (the main means of production in a principally agrariansociety), while the Asiatic mode of production was based oncommunal ownership of land. ‘Bernier correctly discovers the basicform of all phenomena in the East – he refers to Turkey, Persia,Hindostan [India] – to be the absence of private property in land.This is the real key even to the Oriental heaven’ (Marx 1969: 451).Since this aspect of Marx’s thought is controversial I quote heresome extracts from Capital to demonstrate Marx’s view of theimportance of the pre-existing social structure in determining theprospects for the development of capitalism.

Usury has a revolutionary effect in all precapitalist modes ofproduction only in so far as it destroys and dissolves those formsof property on whose solid foundation and continualreproduction in the same form the political organisation isbased. Under Asian forms, usury can continue a long time,without producing anything more than economic decay andpolitical corruption. Only where and when the otherprerequisites of capitalist production are present does usurybecome one of the means assisting in establishing the new modeof production by ruining the feudal lord and small-scaleproducer, on the one hand, and centralising the conditions oflabour into capital, on the other. (Capital III, ch. 36: 583–4)


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To what extent [commerce] brings about a dissolution of the oldmode of production depends on its solidity and internalstructure. And whither this process of dissolution will lead, inother words what new mode of production will replace the old,does not depend on commerce, but on the character of the oldmode of production itself. . . . The obstacles presented by theinternal solidity and organisation of pre-capitalistic, nationalmodes of production to the corrosive influence of commerce arestrikingly illustrated in the intercourse of the English with Indiaand China. . . . [In India] this work of dissolution proceeds verygradually. And still more slowly in China, where it is notreinforced by direct political power. (Capital III, ch. 20: 325,328)

Both the Asiatic and feudal modes of production, in their pureforms, involve production for local use by peasant families,producing agricultural and handicraft goods for their ownsubsistence, and also supporting a ruling class who extract a surplusby extra-economic coercion. In the feudal mode of production, thekey social relations link individuals (or families; succession to bothrights and duties is normally hereditary); an individual lord hasrights over a certain territory, and can exploit the peasants of thatterritory by extracting rent in labour services, in kind, or in money.Correspondingly, individual peasants are tied to particular plots ofland, having the right to till that land and the corresponding duty toperform surplus labour for the landlord. In the Asiatic mode ofproduction, the link is between a state (representing a ruling class)and the village communities which occupy the land, distribute itamong their members according to customary rules, and areexploited by ‘tax-rent’. The political organizations correspondingto these two modes of production mirror the difference in theireconomic organization; feudalism is characterized by ‘parcellized’sovereignty (the phrase is from Anderson 1974) divided betweenmany semi-independent feudal lords, while Asiatic society is‘despotic’. (For discussion of the concept of an Asiatic mode seeKrader 1975 and Anderson 1974.)

There are difficulties with both concepts. The concept of thefeudal mode as applied to Europe is well established, but there aredisputes over its definition, deriving mainly from the problems of

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analysis posed by societies outside western Europe (e.g. are LatinAmerican haciendas feudal?). The concept of an Asiatic mode iseven less well established; Anderson (1974) rejected it forcefully.Part of the problem is that the distinction between feudal andAsiatic modes is not as clear as it seems, since there are manyintermediate forms of land tenure. In any case, the real history offorms of economic organization in Asia before capitalistpenetration is both complex and little understood, so thedifferences between Europe and Asia remain to be explained.

As the feudal order in Europe disintegrated it broke down into asociety of independent peasant producers, generally paying rent tolandlords. Production was a mixture of subsistence peasantproduction, handicraft production for local use, and small-scaleproduction for the market. Feudal landlords, however, had someclaims on the land in the form of rents, and ill-defined rights overcommon lands.The crucial stage was the conversion of these(privately owned) feudal rights into full private property in the land,including the right to dispossess the occupiers, a right that generallydid not exist in the classic feudal social order.

Capitalism is defined by the relation between propertyless, freeworkers and the owners of the means of production. By expellingpeasants from the land, the means of production were concentratedinto the landlords’ hands while at the same time the expelledpeasants became a proletariat, and markets were created bysplitting up activities previously carried out in self-sufficient units.What follows is Marx’s description of the logic of this process(Capital I, part VIII, especially ch. 30). Lenin worked through arather similar analysis (Lenin 1974) in his polemic against theNarodniks.

The story starts with peasant farmers who largely produce theirown subsistence (including the products of rural handicrafts) andexchange only a surplus on the market. They trade, on a small scale,with an urban handicrafts sector, while landlords spend their rentson the products of peasant farmers and on urban handicrafts, aswell as on maintaining servants, and so on. After the expulsion ofthe peasants, food is produced in much the same quantities, on thesame land, by a smaller number of agricultural workers suffering alower standard of living; the surplus in agriculture has thusincreased. A substantial part of the dispossessed peasants are


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employed as wage workers in urban or rural industry, fed from theagricultural surplus. Their products can be sold (by theiremployers), because pre-capitalist rural craft industries have beenlargely destroyed, creating a vacuum into which capitalistproducers can move.

The process, as Marx described it, could in principle be carriedthrough without any fundamental changes in the forces ofproduction: much the same goods go on being produced, in thesame way, using the same land and the same means of production.What has happened is that the social relations of production havebeen completely reorganized. Previously production was largely fordirect use. Now, industry and agriculture, urban and ruralproduction have been separated, and production is largely for sale.Previously the producers possessed their own means of production;now they are propertyless wage earners. Marx called this processthe primitive accumulation of capital. It is not accumulation in thesense of the creation of means of production that did not existbefore. From the point of view of society as a whole it is notaccumulation at all. It is primitive accumulation of capital, becausemeans of production and labour-power that were not previouslypart of capital are transformed into capital. To quote: ‘We knowthat the means of production and subsistence, while they remain theproperty of the immediate producer are not capital. They becomecapital only under circumstances in which they serve at the sametime as means of exploitation and subjection of the labourer’(Capital I, ch. 33: 767). In practice, of course, this process occurredover a long period of time, in which methods of production werechanging and other forces were at work undermining pre-capitalistforms of organization. The account given above is an abstraction.

One aspect of the transition that needs more explanation is theorigins of the capitalist farmer. Typically, in England, landlords didnot operate all their land themselves, but rented it out to capitalisttenant farmers, who employed agricultural wage labour. Marx’saccount here was rather unclear (as are the historical facts), but itseems that he saw the origins of the capitalist tenant farmersprimarily in the better-off peasants, who allied themselves with thelandlords in the struggles over enclosure of common lands, a classthat came later to be called by their Russian name, the kulaks. Thedescription given by Marx applies mainly to England, the first fully

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capitalist society. In France, for example, the revolution of 1789established a system of free peasants owning their own land, andcapitalist agriculture was slow to develop. The transition fromfeudalism to capitalism depends very strongly on specificcircumstances.

Marx described other factors at work in the transition fromfeudalism to capitalism (while always placing the main stress on thecreation of a proletariat): the influx of plunder into England fromIndia and other colonies, the establishment of a world market, themassive growth in mercantile wealth, and so on. The exact role ofthese external factors is not very clear. The influx of wealthpresumably made it easier for prospective capitalists to startbusinesses and build them up, and it promoted a turnover in theactual personnel of the landowning class, with nouveau richesbuying out declining and indebted feudal magnates. All this musthave acted as a sort of lubricant for the still very slow progress of thecapitalist juggernaut. Many recent writers have reversed Marx’semphasis, making the flow of plunder into Europe the main factorin the origins of capitalism (and the failure of capitalist developmentelsewhere). Marx certainly discussed internal and external factorsin primitive accumulation, and the interpretation given above isonly one possible reading. I think it accords both with the logic ofMarx’s case and with the weight of his arguments. A stress onexternal factors is consistent with a picture of capitalism as a worldsystem divided into centre and periphery, but that was not howMarx saw it.

Finally, Marx emphasized the role of the state. Its main functionduring the process of primitive accumulation (apart from providinglegal backing for the expulsion of peasants) was to repress the newlyforming working class, and keep their wages down.

The organisation of the capitalist process of production, oncefully developed, breaks down all resistance. The dullcompulsion of economic relations completes the subjection ofthe labourer to the capitalist. Direct force, outside economicconditions, is of course still used, but only exceptionally. . . . Itis otherwise during the historical genesis of capitalistproduction. (Capital I, ch. 28: 737).


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2.4 THE EXPANSION OF CAPITALISM

Once capitalism is established, capitalists are driven by competitionto find new methods of production which raise productivity andlower costs of production. In pre-capitalist modes of production, bycontrast, labour-saving changes generally bring no benefits (sinceredundant producers cannot be expelled), and increased output isonly useful if it can be consumed by the ruling class or used tomaintain unproductive servants, soldiers, and the like. Competitionin a capitalist system generates cumulative development. Eachadvance is soon copied, laggards go bankrupt, and the leader’sadvantage can only be maintained by repeated expansion andinnovation.

As early as 1848, in the Communist Manifesto (Marx and Engels1950, cited below as Manifesto), Marx insisted that thedevelopment of the forces of production was the essential historicalfunction of capitalism:

The bourgeoisie cannot exist without constantlyrevolutionising the instruments of production, and thereby therelations of production, and with them the whole relations ofsociety. . . . The bourgeoisie, during its rule of scarce onehundred years has created more massive and more colossalproductive forces than have all preceding generations together.(Manifesto: 36, 37)

At the same time, capitalism expands, and draws all othersocieties into its orbit. In some places, Marx argued that thisoutward expansion was driven by a need for markets. In theManifesto, for example: ‘The need of a constantly expandingmarket chases the bourgeoisie over the whole surface of the globe.It must nestle everywhere, settle everywhere, establish connectionseverywhere.’ I have argued that Marx was not an under-consumptionist, and did not see capitalism as dependent onexternal markets; I do not think that this quotation (and others likeit) is a real difficulty for my reading. Capitalism does not developevenly; where one industry (such as cotton textiles in the industrialrevolution) develops ahead of others, it can find itself hampered by

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a shortage of demand relative to a greatly expanded supply.Competition forces capitalist firms to seek out the markets in whichthey can get the best prices for their products, and to seek out thecheapest sources of supply for the goods that they buy. The searchfor cheap raw materials is particularly important, since theiravailability depends, in part, on natural conditions (such as climateand mineral deposits) which are to be found spread all over theglobe. In addition, though there is no inevitable shortage ofdemand, there is, equally, no guarantee that demand will always beadequate. Capitalist economies progress through a sequence ofbooms and slumps, so there are always periods of glut in whichsellers search desperately for markets.

Another factor driving the capitalist sector to expand at theexpense of pre-capitalist production is a need for fresh supplies oflabour-power. It is true that the reserve army of labour is constantlyreplenished by workers made redundant by advances inproductivity, but Marx always assumed that a healthy capitalistsystem would tend to expand more rapidly than the growth ofproductivity in itself would permit, and would thus periodically runinto shortages of labour. In the absence of any external source oflabour-power this would cause an increase in the wage (as demandoutpaces supply in the market for labour-power) which would bothstimulate labour-saving innovations and provoke a crisis, reducingdemand for labour. Any external sources of labour-power would beeagerly raided in order to stave off the crisis.

The competitive process meets both of these needs; the need formarkets and the need for labour-power, so long as capitalistproduction is surrounded by pre-capitalist producers ofcommodities, especially small-scale individual producers. Thetechnical advances enforced by competition allow capitalist firmsto undercut the prices of pre-capitalist producers, eating into theirmarkets and at the same time ruining the producers and forcingthem into the proletariat. Since capitalism emerged in a decayingfeudal society in which commodity production was already wellestablished, conditions were favourable for it to expand anddominate economic life in western Europe (though it took a longtime).

When capitalism first emerged, and the first capitalist empireswere established, the dominant form of capital was merchant


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capital, and the methods of production used were still essentiallythose of pre-capitalist times. There is a long first period in thehistory of capitalism in which these two special featurespredominate, before the period which was Marx’s main subject,when industrial capital had come to predominate and whenmethods of production had been revolutionized by the rise ofmodern industry. In England, the leading capitalist centre, modernindustry originated in the late eighteenth century, but did not cometo dominate until well into the nineteenth.

Merchant capital can develop wherever exchange takes place ona sufficient scale. In a pre-capitalist world, only the surplus over theneeds of reproduction is sold, and, where this surplus is gathered bya ruling class in the form of rents in kind or as the product of forcedlabour, its ‘cost of production’ is not clearly defined. There can behuge differences in prices between different areas, and manyopportunities for monopoly profit. In addition, natural conditionsare responsible for great differences in the costs of production indifferent areas. With a large enough volume of trade, differences inprices would be eliminated, but when long distance trade was verycostly and risky, there could be large profits in trade, and very largeprofits from monopolizing trade. The independent development ofmerchant’s capital, therefore, stands in inverse proportion to thegeneral economic development of society’ (Capital III, ch. 20: 322).

At the same time, the emergence of commodity exchange andlarge-scale trading constituted a basis for the emergence of financialcapital. In his writings on India, Marx placed great stress on thepolitical power of the ‘moneyocracy’ during the period oftransition, a power gained largely by corruption. The period oftransition from feudalism to capitalism and the early stages ofdevelopment of capitalism are thus marked by a massiveefflorescence of merchant’s capital and financial capital, cut downlater by the rise of industrial capital. The commercial empires of thesixteenth to eighteenth centuries were driven mainly by attempts tomonopolize trade (though a simple desire for plunder, a motive thatis as old as the existence of societies worth plundering, was also animportant element). In some cases (such as the sugar plantations ofthe West Indies) these essentially commercial activities extendedinto the organization of production, where indigenous sources of

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supply proved inadequate. In general, the production systems set upwere not capitalist, for the simple reason that no proletariat existedin the areas concerned.

Rightly or wrongly, Marx was very clear that participation in aworld economy dominated by merchant capital did not necessarilymake the mode of production capitalist.

Independent mercantile wealth as a predominant form ofcapital represents the separation of the circulation process fromits extremes, and these extremes are the exchanging producersthemselves. They remain independent of the circulationprocess, just as the latter remains independent of them. . . .Money and commodity circulation can mediate betweenspheres of production of widely different organisation, whoseinternal structure is still chiefly adjusted to the output of usevalues. (Capital III, ch. 20: 322)

The whole chapter from which this quotation is taken, ‘HistoricalFacts about Merchant’s Capital’, is of great importance inunderstanding Marx’s view of the emergence of a capitalist worldeconomy.

Where the preconditions for capitalist production exist,however, merchant capital tends to move into (capitalist)production, typically in the form of the dominance of merchantsover small-scale independent producers, which can develop into‘outwork’, a system in which the workers work in their own homeswith materials and other means of production provided by themerchant. This is, however, according to Marx, only a by-way in thedevelopment of capitalism:

The transition from the feudal mode of production is twofold.The producer becomes merchant and capitalist. . . . This is thereally revolutionary way. Or else, the merchant establishesdirect sway over production. However much this serveshistorically as a stepping stone . . . it cannot by itself contributeto the overthrow of the old mode of production, but tendsrather to preserve and retain it as its precondition. (Capital III,ch. 20: 329)


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The dominance of merchant capital, therefore, tended toundermine the feudal mode of production to some extent while atthe same time hampering the rise of industrial capital and of trulycapitalist production. This point is not merely of historicalimportance. This stage of development persists even now in manyrural areas in the Third World, and some recent writers havestressed the dominance of merchant capital as an important factordelaying capitalist development in underdeveloped areas.

To start with, capitalist production was still based on oldertechniques of production, and the cost advantages of capitalistproducers must have been pretty small, at least in comparison tolater periods, especially after allowing for high transport costs andthe high profit margins demanded by merchant middlemen. Theprocess by which pre-capitalist modes of production areundermined by undercutting their prices therefore went on veryslowly. The mechanisms of primitive accumulation were still goingon, and were still the dominant factor in the growth of capitalism.

The situation was transformed by the rise of modern industry, inwhich the tools are taken out of the worker’s hands and moved andregulated directly by a machine. Since machines are not limited bythe physiology of the human body, productivity could risedramatically. Genuine mass production appeared, with very largesavings in costs. The dominance of merchant capital, dependent onmonopolistic restrictions in trade, had to be swept aside, and thedestruction of pre-capitalist production could accelerate, sincecapitalist producers had a decisive cost advantage. It is thus theemergence of modern industry that is the real turning point in thehistory of capitalism and of capitalist expansion throughout theworld.

Modern industry did not come into being simultaneously in allbranches of production. When one branch of industry isrevolutionized, it places greatly increased demands on branchesconnected with it, and thus creates strong pressures for furtherinnovations. As Marx argued:

A radical change in the mode of production in one sphere ofindustry involves a similar change in other spheres. . . . Thusspinning by machinery made weaving by machinery a

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necessity. . . . The revolution in the modes of production ofindustry and agriculture made necessary a revolution in thegeneral conditions of the social process of production, i.e., inthe means of communication and transport. . . . Modernindustry had therefore itself to take in hand the machine, itscharacteristic instrument of production, and to constructmachines by machines. . . . It was only in the decade preceding1866, that the construction of railways and ocean steamers ona stupendous scale called into existence the cyclopeanmachines now employed in the construction of prime movers.(Capital I, ch. 15: 383-4)

So, the process was hardly complete in the second half of thenineteenth century, although it had started in the late eighteenthcentury. Indeed, some branches of production are still not fullyindustrialized even now. The transition to modern industry,generating these great disproportions between different industries,lasted for a whole historical epoch; broadly, the whole nineteenthcentury.

This unevenness in the introduction of modern industrialmethods is particularly important because, without it, it is difficultto see any basis for large-scale trade between industrial and non-industrial areas. Specifically, since cotton textiles were the firstmajor product to be produced by industrial methods, and sinceEngland was the centre of this industrial revolution, England cameto have a pressing need both for extended markets for cotton goodsand for sources of supply of raw cotton. The consequences of thisfor India will be discussed in the next section. Modern industry isthe highest stage of capitalist development that Marx discussed,since it was the highest stage reached in his time. He discussed theconcentration and centralization of capital, and foresaw thedevelopment of monopoly as an inevitable consequence of thecompetitive process, but it was left to his successors to designatemonopoly capital (or finance capital) as a stage beyond modernindustry.

Capitalism, then, after a long, slow start in which it met theexternal world primarily through the mediation of merchantcapital, came to life with the rise of modern industry, sweeping aside


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merchant capital and imposing a whole series of massivetransformations on the world economy. At the same time, however,huge parts of the world remained in a pre-capitalist stage ofdevelopment and resistant, because of their internal structure, to theimpact of market forces. This is the context of Marx’s writings oncolonialism.

2.5 COLONIALISM

Marx did not discuss colonialism in general terms; his views mustbe deduced from scattered references in his major writings and fromarticles about special cases, notably about Ireland, about the Britishempire in India and (much more superficially) about western,particularly British, dealings with China.

Marx wrote a considerable amount about Ireland (Marx andEngels 1971), mainly in the form of speeches, passing references incorrespondence and the like. He argued that Ireland’s poverty andmisery, compared with England’s status as the leading capitalistcentre, were not caused primarily by any internal difference in theprior mode of production, but by external (English) oppression andexploitation. The expulsion of the peasantry and the creation ofcapitalist farms under the aegis (and to the benefit) of the (English)landed aristocracy followed essentially the same course as inEngland, though it was carried out with even greater brutality, but:‘every time Ireland was about to develop industrially, she wascrushed and reconverted into a purely agricultural land. . . . Thepeople had now before them the choice between occupation of landat any rent, or starvation’ (Marx and Engels 1971: 132). The maincause of industrial failure in Ireland was the absence of protectivetariffs: Irish industry could not survive English competition. In this,Ireland’s fate does not seem very different from that of variouscountry districts of England, except for the absence of politicalconstraints on exploitation. Like workers from rural areas ofEngland, the Irish were forced to migrate to seek work in theindustrial cities of England. The difference was the existence of arevolutionary (though not socialist) nationalist movement.

Marx was especially concerned to see a nationalist revolutionagainst the aristocracy in Ireland, since this would undermine their

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hold in England, reduce divisions between Irish and Englishworkers in England, and thus advance the socialist revolution inEngland, which ‘being the metropolis of capital . . . is for the presentthe most important country for the workers revolution, andmoreover the only country in which the material conditions for thisrevolution have developed up to a certain degree of maturity’ (Marxand Engels 1971: 294). Neither Marx nor Engels thought thatrevolution in Ireland could be socialist. Engels, after Marx’s death,argued that the Irish wanted land, to become independent peasantsand ‘after that, mortgages will appear on the scene and they will beruined once more’. They should, however, be encouraged to ‘passfrom semi-feudal conditions to capitalist conditions’ (p. 343). Thisview of the regressive effect of British rule in Ireland contrasts withMarx’s view of its effects in India.

The articles about India and China (Marx 1969; Marx andEngels n.d.) were written for the New York Daily Tribune. The mainseries was published during 1853, and includes both commentaryon issues of current interest and a number of articles in which Marxset out his considered view on India; these few ‘set piece’ articles arethe main source. In 1853, five years after the writing of theCommunist Manifesto, Marx had arrived substantially at hismature position, but the economic analysis which culminated inCapital was not yet worked out in detail. Where he returned to thesame topics in Capital, however, there is little sign of any change inhis thinking.

How much did Marx know about India? It is obvious, both fromthe articles and from the ‘Notes on Indian History’ which hecompiled, that he had read virtually everything available to him onIndia and was exceedingly well informed on the political andmilitary history of the sub-continent. There was, however, muchthat he did not know, probably because no one at that time (orperhaps since) knew it. Thus, in an article of 7 June 1858 (Marx1969: 313) he discussed debates then going on in England about thereal nature of land tenure in India, without firmly coming down infavour of any one interpretation, and in an article of 23 July 1858(Marx 1969: 330) he discussed contemporary debates about theburden of taxation in India without being able to settle the questionof whether or not Indian cultivators are ‘overtaxed’, in the sensethat taxation threatens the resources needed for reproduction.These two issues (land tenure or the relations of production, and the


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extent of exploitation and the size of the potential surplus product)should presumably be crucial to a Marxist analysis of Indiansociety, but the information was simply not available.

Marx examined the origins and development of the East IndiaCompany, arguing that it had, from an early date, two objects: todevelop trade, and also to ‘make territorial revenue one of [its]sources of emolument’. As the company’s territories expanded fromthe middle of the eighteenth century to the middle of the nineteenth,the time when Marx was writing, it came more and more under thecontrol of the British state, creating a peculiar hybrid of public andprivate power typical of the oligarchic British state of that epoch.

The whole character of the British relationship with India wastransformed in the early nineteenth century by the rise of industrialcapital. Before then, Indian textiles were among products exportedto Britain, with a drain of precious metals to India to pay for them.In 1813 trade with India was thrown open to competition, thebalance of trade soon turned the other way, and India was floodedwith British textiles. By the mid-nineteenth century, the coalition ofinterests that lay behind the original British drive into India wasbreaking up.

Till then the interests of the moneyocracy which had convertedIndia into its landed estates, of the oligarchy who had conqueredit by their armies, and of the millocracy who had inundated itwith their fabrics had gone hand in hand. But the more theindustrial interest became dependent on the Indian market, themore it felt the necessity of creating fresh productive powers inIndia, after having ruined her native industry. You cannotcontinue to inundate a country with your manufactures, unlessyou enable it to give some produce in return. . . . Themanufacturers, conscious of their ascendancy in England, asknow for the annihilation of these antagonistic powers in India,for the destruction of the whole ancient fabric of IndianGovernment, and for the final eclipse of the East IndiaCompany. (Marx 1969: 107)

Here is the key to Marx’s arguments. While merchant capital and itsallies exploit and destroy without transforming, industrial capitaldestroys but at the same time transforms.

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What were British motives in India? Who were the beneficiariesof empire? Once it became a territorial power, the East IndiaCompany ceased to be profitable, as the proceeds of taxation wereeaten up by the administrative and military costs of occupation; theneed for financial support was a vital lever driving the East IndiaCompany into the hands of the British government. On the otherhand, private citizens, principally the employees of the Company,did very well, with inflated salaries and many opportunities forprivate corruption, looting and perquisites of one sort or another.This is characteristic of the rise of capitalism, a period in which thestate and the privileges it could grant were a major source of supportfor the ‘moneyocracy’ and the ‘oligarchy’.

The other principal beneficiaries were the industrial bourgeoisie.I have already discussed the ambiguities in Marx’s discussion of theneed for markets. Here it is clear that it is not markets in general thatare needed, but markets for cotton textiles. ‘At the same rate atwhich the cotton manufactures become of vital interest for thewhole social frame of Great Britain, East India became of vitalinterest for the British cotton manufacturer’ (Marx 1969: 107).This links up with the statement quoted above: ‘You cannotcontinue to inundate a country with your manufactures unless youenable it to give you some produce in return.’

Marx presented a theory of capitalism in the abstract, but heknew that the real world was far from reducible to the play of pureeconomic abstractions. He did not argue that capitalism in Britainhad to have colonies, but that once history had taken that turn, therewas no going back. India became necessary, not to capitalism ingeneral, but to capitalism as it had in fact developed. England had atrade surplus with India (as a result of cotton exports), which Indiafinanced from its surplus with China (the opium trade), while Chinain turn exported tea and other products both to England and toAustralia and the USA, which had surpluses in trade with England,closing the circle. Marx analysed the way in which the opium tradewas a linchpin of this system, and therefore had to be protected andexpanded (by force), while at the same time the effects of the opiumtrade in China actually diminished China’s capacity to import othergoods from the west. The creative tension between theory andhistorical specificity in Marx’s writings is one mark of his greatness.

There is no suggestion that the workers in England gained fromthe colonies, except in so far as the cotton industry in England


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expanded, and thus employed more, at the expense of Indian textileproduction. They were no more secure in their jobs, nor were theybetter paid as a result:

As to the working classes, it is still a much debated questionwhether their condition has been ameliorated at all as a result ofthe so-called public wealth. . . . But perhaps also, in speaking ofamelioration, the economists may have wished to refer to themillions of workers condemned to perish, in the East Indies, inorder to procure for the million and a half of work peopleemployed in England in the same industry, three years ofprosperity out of ten. (Marx, Poverty of Philosophy, 1847, citedin Marx 1969: 35)

The quotations from Engels (not Marx) which Lenin used to linkthe idea of a labour aristocracy to the possession of colonies (Lenin1950: 545) mostly date from later, and are very ambiguous,referring to the bourgeois ideas of some English workers rather thanto any material benefit to them.

Marx did not discuss, in any general way, why trade promotionshould involve military conquest and direct administration of pre-capitalist areas. Two motives emerge from particular cases: first, toexclude other nations and to ensure unimpeded entry of theconquering power’s own goods and, second, because Asiatic societyis very resistant to penetration by trade alone, so direct use of statepower is called for. Marx also stressed the inheritance both ofcolonial territory and of vested interests (such as the large andwealthy stratum of employees of the East India Company) fromearlier stages of development.

What, then, was the effect of British rule in India? Marx set outhis views in a famous pair of articles: ‘British rule in India’, and Thefuture results of British rule in India’ (Marx 1969: 88 ff.; 132 ff.).

Asiatic society, according to Marx, was based on a villageeconomy, characterized by a union within the village of agricultureand handicrafts, a traditional, hereditary division of labour and anabsence of private property in land. The first two characteristics arereminiscent of the feudal structure from which capitalism emerged.Feudalism was broken up primarily by the conversion of feudal intobourgeois property in land and the expulsion of the peasants from

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the land. In the absence of private landed property, this form oftransformation was blocked in India. In the Asiatic mode ofproduction, surplus was not creamed off by individual landlords,but by the state, as the highest representative of communallandownership, in the form of taxation. Marx quoted earlierwriters saying that the village structure stands unaltered as statesand empires come and go above it. The East India Company, inoccupying India, had, in the first instance, simply replaced theseprevious states.

Marx argued that it was the combination of a need for large-scalepublic works (irrigation works, etc.) for climatic and geographicalreasons, together with a ‘low level of civilisation’, which called intoexistence ‘the interference of the centralising power of government’.Technical requirements alone did not create Asiatic despotism:Flanders and Italy also needed large-scale works but in Europe, in adifferent social context, private enterprise was driven to voluntaryassociation. In a striking (and much quoted) phrase, Marx wrote:

There have been in Asia, generally, from immemorial times, butthree departments of Government: that of Finance, or theplunder of the interior; that of War, or the plunder of theexterior; and, finally the department of Public Works. . . . Nowthe British in East India accepted from their predecessors thedepartment of finance and war, but they have neglected entirelythat of public works. (Marx 1969: 90; the argument and thephrases come from a letter by Engels to Marx, ibid.: 451-2)

He added: ‘in Asiatic empires we are quite accustomed to seeagriculture deteriorating under one government and reviving againunder some other government.’ It seems, in fact, that the neglect ofpublic works was a result of the breakup of the Mogul empire,before the British conquest, and that public works revived at aroundthe time that Marx was writing, presumably because of the interestof industrial capital in expanding markets. The real devastationthat British penetration into India brought with it was thedestruction of Indian handicraft textile production by competitionfrom the mechanized textile industry of Lancashire.

Marx discussed the reasons why Asiatic production was soresistant to capitalist competition, with special reference to China


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(Marx 1969: 393ff.). The production of cloth was integrated withfarm work and the time when agricultural work was slack could beused for handicrafts, so that the costs of actually producing thecloth were almost non-existent. The producers controlled their ownmeans of subsistence, and thus could not be starved out byundercutting. It was only with the direct assistance of state powerthat the destruction of Indian textiles could occur, and even so itproceeded fairly slowly. In China, where direct European controlwas absent, Lancashire textiles made even less impact: this,according to Marx, was a major reason for British aggressivenesstowards China. The exact mechanisms by which British textilesconquered the Indian market are rather unclear in Marx’s writings.

Between the neglect of public works and the destruction of thetextile industry, British rule produced widespread misery in India. Itdid, however, have its progressive side as well. English industrialcapitalism, according to Marx, had an interest in the developmentof the Indian economy. This meant, above all, the building ofrailways, which Marx expected to initiate further industrialdevelopment, and to break down the isolation of Indian rural life.He gave an impressive list of the modernizing and integrating effectsof British rule:

[Political] unity, imposed by the British sword, will now bestrengthened and perpetuated by the electric telegraph. Thenative army, organised and trained by the British drill-sergeantwas the sine qua non of Indian self-emancipation. . . . The freepress is a new and powerful agent of reconstruction . . . privateproperty in land – the great desideratum of Asiatic society. Fromthe Indian natives . . . a fresh class is springing up, endowed withthe requirements for government, and imbued with Europeanscience. (Marx 1969: 133)

In short, British rule was destroying the static Asiatic society andcreating the pre-conditions both for industrial capitalism and forthe creation of a modern Indian nation state, but not automaticallyor painlessly:

All the English bourgeoisie may be forced to do will neitheremancipate nor materially mend the social condition of the

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mass of the people, depending not only on the development ofthe productive powers, but on their appropriation by thepeople. But what they will not fail to do is to lay down thematerial premises for both. Has the bourgeoisie ever donemore? Has it ever effected a progress without draggingindividuals and peoples through blood and dirt, through miseryand degradation? The Indians will not reap the fruits of the newelements of society scattered among them by the Britishbourgeoisie till in Great Britain itself the now ruling classes shallhave been supplanted by the industrial proletariat, or till theHindoos themselves shall have grown strong enough to throwoff the English yoke altogether. (Marx 1969: 137)

Marx’s argument, then, can be summarized: British rule in India(a) causes massive misery, (b) creates the preconditions for massiveadvance and (c) must be overthrown before the benefits can beenjoyed. This argument has frequently been regarded as surprisingand paradoxical. I cannot see why it should seem so to a Marxist;replace the words ‘British rule’ with ‘capitalism’ and it is exactly theargument of the Communist Manifesto. Even the tone, the style isthe same: the deliberate juxtaposition of the most exalted praise formaterial achievements and the shocking images used to bring homethe concomitant human misery. The article was, after all, writtenonly five years after the Manifesto.

There are, I think, two reasons why Marx’s arguments have beenregarded as an embarrassing lapse on his part. First, Marxists haveoften (rightly) aligned themselves with broadly based movements ofnational liberation, and have wanted, for propaganda reasons, toascribe all social evils to the foreign oppressors and to see theoppressed nation as inherently progressive and morally superior.Whether it is wise to cover up the evils of the past and of theindigenous social structure is another matter; Marx did not thinkso. Second, Marx’s predictions seemed to fail. India did not, underBritish rule, develop into a major industrial country. The assessmenthere must depend on what time scale Marx expected for thedevelopments he predicted; there is no clear indication in hisarticles. Other passages make it clear that the village organizationremained and was very resistant to change. The factors Marx listedas Britain’s bequest to a future independent India (unity, the native


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army, the free press, an educated middle class) are surely exactly thefactors that have given modern India its distinctive character. I shallnot pursue these arguments here, since the reasons for the slownessof development in the Third World since Marx’s time will bediscussed in later chapters.

Is Marx’s analysis of India inconsistent with his opinions onIreland? Since Marx’s writings on Ireland generally date from later(though he was writing in support of Irish nationalism as early as1848), is there evidence of a change in Marx’s view on colonialism?I think not. Marx wrote with detachment about the Indian mutinyof 1857, expressing no support for the rebels and cataloguing theatrocities of both sides. The reason is clear: he regarded Indianindependence at that date as unattainable since its material andsocial foundations did not yet exist. This is even clearer in hisdescription of the Taiping rebels in China:

It seems that their vocation is nothing else than to set against theconservative disintegration [of China] its destruction, ingrotesque horrifying form, without any seeds for a renaissance.. . . Only in China was such a sort of devil possible. It is theconsequence of a fossil form of life. (Marx 1969: 442, 444)

In Ireland, by contrast, a modern democratic nationalist movementexisted, since Ireland had a different mode of production and wasat a different stage of development. Marx’s political analysis wasalways based on analysis of particular situations.

2.6 SUMMARY

Marx defined capitalism in terms of the relation between a class offree wage labourers and a class of capitalists. Competition compelsaccumulation and technical progress. Capitalism does not need asubordinated hinterland or periphery, though it will use and profitfrom one if it exists. Up to the industrial revolution, capitalism’sexternal relations were mediated through merchant capital, and didnot necessarily transform the other societies which were drawn intothe world market. Once industrial capital had taken charge,

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capitalist conquest could play a progressive (though brutal) role byinitiating capitalist industrialization. The origins and rapiddevelopment of capitalism in Europe and its slow penetration inAsia were the result of differences in the preceding modes ofproduction in these areas; European domination was aconsequence, not a primary cause, of this difference.

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3

Luxemburg

After Marx’s death in 1883, there was something of a lacuna in thedevelopment of Marxist thought until the early twentieth century,when there was an explosion of Marxist writing. I shall deal firstwith the work of Rosa Luxemburg, before describing the creationof what I shall call the ‘classical’ Marxist theory of imperialism, byHilferding, Bukharin and Lenin. Luxemburg followed Marx muchmore closely than the other writers mentioned, who developed adistinctly new set of ideas.

Her main work was The Accumulation of Capital, published in1913 (Luxemburg 1951, cited below as Accumulation). It washeavily criticized, and in 1915 she wrote a reply (Luxemburg 1972,cited below as Anti-Critique), eventually published in 1921. Anumber of her arguments emerge much more clearly in the Anti-Critique than in the original presentation, so I shall use itextensively. (Readers of Accumulation may find it helpful to regardsections one and two of that book as a sort of enormously extendedprologue, with the main argument starting on page 329 of theedition that I have cited.) Some of my arguments derive from aparticularly thorough, though in parts sharply polemical, critiqueof both these works by Bukharin (1972b).

Luxemburg put forward two distinct arguments. First, shethought that she had detected a logical flaw in Marx’s analysis ofexpanded reproduction which made it impossible to realize (i.e. tosell) goods corresponding to that part of surplus value destined tobe reinvested, without having ‘outside’ (non-capitalist) buyers. Forthis reason, she argued, capitalism cannot exist in a pure form, but

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only in conjunction with non-capitalist systems. I shall argue thatshe was simply wrong on this point. Second, she followed Marx inarguing that capitalism was, in fact, surrounded by pre-capitalisteconomic formations, and that competitive pressures drivecapitalist firms and capitalist states to trade with these ‘outside’economies and ultimately to break them up. Accumulation containsa fair amount about the impact of capitalism on pre-capitalistsocieties which remains relevant despite the failure of her firstargument, since its inclusion is justified by the second.

She insisted on an important conceptual point. The distinctionbetween ‘inside’ and ‘outside’ from the point of view of capitalism(e.g. ‘outside buyers’) means inside or outside capitalist relations ofproduction. The world is divided into nation states, colonies, andthe like, but it is also divided into a capitalist sector and a non-capitalist sector, and it is the latter division that is relevant for herpurposes. Marx also drew this distinction, but it is to Luxemburg’scredit that she maintained it consistently throughout her work.

In her picture of the world, capitalism exists alongside othermodes of production, but remorselessly expands into its non-capitalist environment, ultimately swallowing it all up. Since sheargued that capitalism needs this non-capitalist environment tosurvive, it follows that capitalism’s triumph, the replacement of allpre-capitalist systems, must also be the signal for its collapse:

Capitalism is the first mode of economy with the weapon ofpropaganda, a mode which tends to engulf the whole globe andto stamp out all other economies, tolerating no rival at its side.Yet at the same time it is also the first mode of economy whichis unable to exist by itself, which needs other economic systemsas a medium and soil. Although it strives to become universaland, indeed, on account of this tendency, it must break down –because it is immanently incapable of becoming a universalform of production. (Accumulation: 467)


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3.1 THE REALIZATION OF SURPLUS VALUE

In Marxist theory, surplus value originates in production, where thevalue produced by a worker exceeds the value of his labour-power.The value created is embodied in a product, which must be sold to‘realize’ the value in money terms, before the capitalist can buy freshmeans of production and labour-power to start the process again.Marx analysed the realization of the product, and the reproductionof the system as a whole, in a purely capitalist economy, containingonly workers and capitalists, plus hangers on (priests, prostitutes,etc.) who derive their incomes from the capitalists. Luxemburgargued that expanded reproduction is impossible in this context.

I have already outlined Marx’s analysis of reproduction, but Ishall restate it here in order to see Luxemburg’s objections. Forreproduction to continue smoothly, the entire product at the end ofa period of production must be realized, i.e. sold to someone. Thisrequires two conditions: the total value of demand, of spending,must equal the value of the product, and the particular goods whichmake up the total product must match up with the wants of thepurchasers. Luxemburg’s main concern is with the first of these.How did Marx deal with it? The product is in the hands of thecapitalists. Where does demand come from? Some comes fromcapitalists themselves; they must replace used up means ofproduction, and also buy extra means of production (in the case ofexpanded reproduction). They also buy goods for their personaluse. Another part of total demand comes from workers who spendtheir wages on consumption goods. Since wages are paid bycapitalists, we can think of workers’ demand for goods as being anindirect form of spending by capitalists. Finally we have the hangerson. Their spending again derives from a redivision of capitalists’incomes, so this again we can think of as indirect spending bycapitalists.

It seems, then, that goods belong to capitalists and they arebought, directly or indirectly, out of the spending of capitalists. Itseems strange, at first sight, that capitalists should buy their ownproducts, and it is probably this apparent difficulty that lies behindRosa Luxemburg’s unwillingness to accept the argument. It is not,however, a problem at all when we realize that capitalism, by

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definition, consists of many independent units which exchangetheir products on the market. Money is purely an intermediary inthe redistribution of products from their sector of origin to thesector where they are to be used. The condition for surplus value tobe realized is that it must be spent. Capitalists get surplus value bypaying less to workers than the value created, but they must(collectively) spend the surplus (on consumption, on buying extrameans of production, or on advancing wages to extra workers) inorder to realize it. This will not necessarily happen: if the prospectsof profit are poor, capitalists may hold back from investment andmake the situation worse.

Luxemburg’s approach is not easy to pick out in theAccumulation (though it emerges fairly clearly in chapter 25) but inthe Anti-Critique the problem is set out very clearly, and we can bestunderstand her difficulty by extracting a series of quotations fromthat work.

Let us imagine that all the goods produced in capitalist societywere stored up in a big pile at some place, to be used by societyas a whole. We will then see how this mass of goods is naturallydivided into several big portions of different kinds anddestinations. (Anti-Critique: 51)

Consumption by workers and capitalists, together withreplacement of means of production, account for parts of this ‘pile’,and pose no serious problems of analysis; they are exchanged in thefashion described in Marx’s analysis of simple reproduction. But inaddition there must be

a portion of commodities which contains that invaluable part ofsurplus value that forms capital’s real purpose of existence: theprofit designed for capitalisation and accumulation. What sortof commodities are they, and who needs them? (Anti-Critique:55)

As Luxemburg herself said, ‘here we have come to the nucleus ofthe problem of accumulation, and we must investigate all attempts


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at a solution’. The buyers cannot be workers (their spending isaccounted for) nor intermediate strata (‘like civil servants, military,clerics, academics and artists’), since their income is derived fromdiverted profit or from taxes on wages and their spending should beincluded among the forms of consumption already considered, norcan the buyers be capitalists as consumers (since this spending is atthe expense of accumulation, and cannot bring accumulationabout).

This is the crux: ‘Perhaps the capitalists are mutual customers forthe remainder of the commodities – not to use them carelessly, butto use them for the extension of production, for accumulation’(Anti-Critique: 56-7). This is in line with Marx, the orthodoxMarxist tradition, and with modern economics, but she rejected thepossibility:

All right, but such a solution only pushes the problem from thismoment to the next . . . the increased production throws an evenbigger amount of commodities onto the market the followingyear . . . [will] this growing amount of goods again be exchangedamong the capitalists to extend production again, and so forth,year after year? Then we have the roundabout that revolvesaround itself in empty space. That is not capitalist accumulationi.e. the amassing of money capital, but its contrary: producingcommodities for the sake of it; from the standpoint of capital anutter absurdity. (Anti-Critique: 57)

From this she drew the conclusion that there must be buyers outsidecapitalist relations of production.

What are we to make of this argument? First, there is an implicitappeal to a teleological interpretation of capitalism which runsright through Luxemburg’s treatment of accumulation. Productionmust have a purpose. We cannot have production for its own sake.This line of argument (closely related to several versions of under-consumptionism, for example Hobson’s) is surely misconceived.The essence of capitalism is that it is a decentralized (or anarchic)system. As a system it does not have, nor does it need, a purpose.Individual capitalists, workers, organizations of various sorts, mayhave purposes, but the system as a whole cannot. Individual

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capitalists accumulate (under favourable conditions) because theyare forced to by competition, something she understood wellenough in other contexts.

Second, she seems to have thought that if the surplus product isexchanged among capitalists for accumulation, it must imply acontinuous increase in the production of means of productionsomehow disconnected from consumption. This is incorrect; ifproductivity, the real wage rate, and the proportion of surplus valueaccumulated all remain constant, then both workers’ andcapitalists’ consumption will expand in line with total output. Ascapital accumulates, more workers are employed, so there is morespending on wage goods. At the same time, the amount of profit(surplus value) expands and, if a constant proportion is spent by thecapitalists on consumption (or passed on to servants, charities, etc.,to spend), capitalists’ spending expands in line with accumulation.The whole system expands together.

Third, what of the need to accumulate money capital?Accumulation by capitalists must clearly be distinguished fromhoarding by misers. Capitalists only accumulate money capitaltemporarily, in order to set it in motion as a functioning, profit-making capital. (This is what distinguishes money capital from idlehoards of money.) The conversion of surplus value into money is anessential intermediate stage in converting it into additional capital,but it is only a temporary stage, and there is no reason why allcapitalists should seek to pass though this stage simultaneously.Provided some capitalists have funds in hand, they can buyadditional means of production and advance additional wages tonew employees, to be spent on the products of consumer goodsindustries, thus providing a further group of capitalists with moneycapital to spend on new investment, and so on.

Her difficulty seems to arise from a confusion of levels ofabstraction akin to her search for a ‘purpose’ of production. Sheinsisted that the problem of realization must be examined on thelevel of the aggregate social capital, but she treated the aggregatecapital as though it were an individual capital which has to sell toothers, and buy from others. She seems to have been unwilling torecognize the difference between a system and a component elementwithin a system.


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She also asked: if surplus value can be realized within the systemwhy should crises occur in which commodities cannot be sold? Theanswer is surely obvious: what has been shown is that it is possiblefor surplus value to be realized in this way, not that it necessarily willbe. If new investment is expected to be profitable, it will beundertaken. If not, investment will not take place, and the processbreaks down. Again, she overlooked the anarchy of capitalistproduction; individual capitalists do not necessarily act in theinterests of the system. Joan Robinson, in her introduction to theAccumulation, has suggested that Luxemburg could be read interms of the possibility of deficient aggregate demand. Large partsof Luxemburg’s writings can be interpreted in this way, but it is clearthat her primary emphasis was not on the possibility that capitalistsmight not choose to buy each other’s products and thus sustaindemand, but on the absurdity (in her eyes) of supposing that theycould ever do so.

Finally, we can ask what use non-capitalist buyers would be insolving what I have already argued is a non-problem. Oncecapitalists have converted surplus value into money capital, theyexchange it for the elements of productive capital by buyingadditional means of production and employing additional workerswho, in turn, spend their wages on means of subsistence. Where arethey to obtain these commodities from? If, following Luxemburg,we say that they cannot get them by exchange within the system,then they must buy from non-capitalist sources. Either there mustbe pre-capitalist sellers of machine tools, integrated circuits,computers, and so on, or (following Bukharin’s ironic suggestion)capitalists must first sell these goods to non-capitalist buyers, andthen buy them back again. This is clearly absurd.

In saying this, I do not deny that capitalism in fact trades withnon-capitalist sections of the world economy. Trade outside thecapitalist world is easily incorporated into the analysis of exchangeas a redistribution of the product between different branches of theeconomy. Where there is external trade, products are exported andgoods equivalent in value take their place by being imported. So, forexample, Britain in the nineteenth century produced more cottontextiles than it consumed domestically, but did not produce rawcotton. The one was exchanged for the other. Trade alters the

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commodity mix of the ‘pile’ of products (using Luxemburg’s ownmetaphor) but not its value (abstracting from any inequality ofexchange, which is a different issue).

In a similar vein, Luxemburg argued (in The Accumulation ofCapital) that Marx’s schemes of expanded reproduction cannotincorporate an increasing organic composition of capital. Sheconcluded that there will be a shortage of means of production, andhence that non-capitalist suppliers of means of production areneeded. Against this we can argue that the problem arises onlybecause Marx had picked the figures he used specifically toillustrate the case of a constant organic composition. Critics ofLuxemburg immediately produced examples in which the difficultydid not arise, and she effectively conceded their point (Anti-Critique: 48) by rejecting, as irrelevant, numerical or mathematicalexamples of the sort she herself had relied on in Accumulation.Luxemburg (like Marx himself) got into some difficulties inconstructing numerical schemes of expanded reproduction, byinsisting that the surplus value of each sector of the economy mustbe reinvested in the same sector. There is a long and vitriolic attackon Bauer (in the Anti-Critique), for assuming a transfer of capital(which she interpreted as a ‘gift’) from one department to another.It is, however, clear that the equalization of profit rates requires freemobility of capital throughout the economy.

She did raise some real problems about the commodity mix ofoutput. Not only does the value of the product have to be matchedby a corresponding value of spending, but the composition ofoutput (the proportion of means of production, consumer goodsand so on) has to be right. So long as the proportions are right tostart with and the system expands steadily, one can show that theproportions will remain right, even, as noted above, with anincreasing organic composition of capital. This does not, of course,solve the problem in practice. Luxemburg was right to stress thatcapitalist production does not expand evenly and predictably, andit is also true that in some circumstances relatively small initialdisproportions can grow, and disrupt reproduction, if we insist onall of the product being used (see Morishima 1973, ch. 10, for anexample). Here again we step outside the orderly world of theschemes of reproduction. Capitalist firms normally carry stocks


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and retain some spare capacity, thus providing an elasticity that theabstract schemes of reproduction do not allow for. In the real worldthere are recurrent crises which offer the opportunity ofrestructuring production. In any case, trade with non-capitalistsectors may sometimes help (if there is, say, a shortage of rawcotton) and sometimes not (if the shortage is of electronicequipment).

3.2 THE PROCESS OF CAPITALIST EXPANSION

If Luxemburg was wrong to argue that capitalism needs a non-capitalist environment, she was surely right to stress that it did infact appear and grow in such an environment.

Capitalism arises and develops historically amidst a non-capitalist society. In Western Europe it is found at first in a feudalenvironment from which it in fact sprang . . . and later, afterhaving swallowed up the feudal system, it exists mainly in anenvironment of peasants and artisans. . . . European capitalismis further surrounded by vast territories of non-Europeancivilisation ranging over all levels of development. . . . This is thesetting for the accumulation of capital. (Accumulation: 368)

The two sectors of the world economy, capitalist and non-capitalist,do not live side by side in a state of peaceful coexistence. Luxemburgsaw non-capitalist modes of production as essentially static: theequilibrium is not disturbed from that side. Capitalism, by contrast,is driven into constant expansion:

Moreover, capitalist production, by its very nature, cannot berestricted to such means of production as are produced bycapitalist methods. Cheap elements of constant capital areessential to the individual capitalist who strives to increase hisrate of profit. . . . From the very beginning, the forms and lawsof capitalist production aim to comprise the entire globe as astore of productive forces. Capital, impelled to appropriateproductive forces for purposes of exploitation, ransacks the

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whole world, it procures its means of production from allcorners of the earth, seizing them, if necessary by force, from alllevels of civilisation and from all forms of society.(Accumulation: 358)

As well as seizing means of production wherever they are to befound, capital is always on the lookout for cheap labour. In pre-capitalist societies, labour is usually ‘rigidly bound’ by thetraditional organization of production, and it has to be ‘set free’ tobecome useful to capital (Accumulation: 362). Unfortunately, in theAnti-Critique, she went back on this perfectly good line of argumentwhen she vigorously rejected Bauer’s explanation of imperialism asa search for labour-power, on the grounds that capitalismnecessarily produces unemployment of labour in its homelands.

She also argued that capital can do things in the colonies that itcould not get away with at home, giving it an elasticity and capacityto respond to events that it would not otherwise possess. Herexample is the creation of ‘immense’ cotton plantations in Egyptduring the American civil war:

Only capital with its technical resources can affect suchmiraculous change in so short a time – but only on the pre-capitalist soil of more primitive social conditions can it developthe ascendancy necessary to achieve such miracles.(Accumulation: 358)

Here there is clearly some conception of the political and ideologicalconditions necessary for accumulation, but they are not spelt out inany systematic way.

The arguments set out above are not, of course, wholly new. Theworld-wide expansion of capitalism was a constant theme inMarx’s writings, but it was to some degree pushed into thebackground in Capital by the theoretical task of analysing a purecapitalist mode of production. Luxemburg brought this aspect ofMarx’s thinking back into the limelight. She was surely right toargue that, in the real history of capitalism, the expansion ofcapitalist relations of production is one of the most important,perhaps the most important, process at work.


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The conceptual framework of her analysis was, however, rathercrude. She dealt, as many Marxists have done, in a single andundifferentiated concept of ‘capital’, without any clearspecification of the stages of development which capitalism goesthrough, of the possible divergent interests of particular sectors, orof the political mechanisms by which the interests of ‘capital’ aretranslated into the policies of particular national states. In herdescription of the pre-capitalist societies into which capitalismexpands, there is a similar lack of distinctions, and a lack of analysisof the internal workings of these societies. She simply treated all pre-capitalist societies as ‘natural economies’, that is, systems of localself-sufficiency, of production for direct use rather than forcommodity exchange. I have already discussed Marx’s analysis ofthe resistance of such forms of economy to penetration bycommodity trade. Luxemburg put forward similar arguments:

In all social organisations where natural economy prevails . . .economic organisation is essentially in response to the internaldemand; and therefore there is no demand, or very little forforeign goods, and also, as a rule, no surplus production, or atleast no urgent need to dispose of surplus products. What ismore important, however, is that, in any natural economy,production only goes on because both means of production andlabour power are bound in one form or another. . . . A naturaleconomy thus confronts the requirements of capitalism at everyturn with rigid barriers. Capitalism must therefore always andeverywhere fight a battle of annihilation against every historicalform of natural economy. (Accumulation: 368-9)

In this passage, and elsewhere, there is a direct identification ofnatural economy with pre-capitalist organization, with only simplecommodity production as an intermediate stage. Everything issubordinated to her vision of a world divided between the ever-expanding domain of capital and the surrounding ‘medium andsoil’ of static, closed natural economies, with a fringe of pre-capitalist societies in the process of dissolution marking theboundaries. This is surely too simple. As she recognized herself,capitalism in its expansion incorporates other forms oforganization into its own world economy (slavery, bondage of

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various forms), while at the same time, pre-capitalist forms oforganization (the feudal corvée farm, to quote her own example)have, at various stages, traded their surplus product on a large scale(Accumulation: 357). I shall discuss these issues in later chapters,simply noting here that to a certain extent Luxemburg’s own graspof the real historical process came into conflict with her attempts toreduce it to a single driving force, the accumulation of capital.

How is the ‘struggle against natural economy’ carried out? Shelisted four ends pursued by capital:

(1) To gain immediate possession of important sources ofproductive forces such as land, game in primeval forests,minerals, precious stones, and ores, products of exotic florasuch as rubber, etc. (2) To ‘liberate’ labour power and to coerceit into service. (3) To introduce a commodity economy. (4) Toseparate trade and agriculture. (Accumulation: 369)

These fall into two groups. The first two represent ways in which anatural economy can be forced directly into capitalist production(cf. Marx on primitive accumulation). The third and fourthrepresent a more indirect route in which simple commodityproduction is installed and then undermined either directly or bycompetition with the cheap products of capitalist industry.

Throughout, she emphasized the use of force, state power andfraud, as Marx did in his treatment of primitive accumulation. Shewrote:

At the time of primitive accumulation, i.e. at the end of theMiddle Ages . . . right into the nineteenth century, dis-possessingthe peasants . . . was the most striking weapon. . . . Yet capital inpower performs the same task even today, and on an even moreimportant scale – by modern colonial policy. . . . Accumulationcan no more wait for and be content with, a natural internaldisintegration of non-capitalist formations . . . than it can waitfor the natural increase of the working population. Force is theonly solution open to capital: the accumulation of capital, seenas an historical process, employs force as a permanent weapon,not only as its genesis, but further on down to the present day.(Accumulation: 369-71)


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These themes are developed through examples, which I shallsurvey very briefly. Her discussion of India is vague on criticalpoints; the story seems to be that the British first set out to transformland into private property, and then to ruin the producers byovertaxation, neglect of public works, and so on, in order to forcethem into debt and take over their lands. This process recurs in othercases, and is a major route by which pre-capitalist formations areundermined. (She seems, incidentally, to have been unaware ofMarx’s writings on India, which present a rather more complexpicture.) Her chapter on ‘the introduction of commodity economy’is rather disappointing; the only real example is the introduction byforce of the opium trade into China. This is a very special case, sinceit was the addictive nature of the commodity, not force, that ensuredit a market, while the force was directed at the Chinese state, andnot at the ‘natural economy’ of the Chinese villagers.

She then discussed the separation of industry from agricultureunder the title of ‘the struggle against peasant economy’, giving avery interesting description of the evolution of Americanagriculture from the self-sufficient peasant agriculture of thepioneer settlers on the frontier. ‘It is a recurrent phenomenon in thedevelopment of capitalist production that one branch of industryafter the other is singled out, isolated from agriculture, andconcentrated in factories for mass production’ (Accumulation:395). The analysis of this process turns out, however, to be ratherdifficult to fit in to her general framework. The problem is that if apeasant household chooses to remain self-sufficient, producing thegoods it consumes itself, there are really only two options: eitherthey must be left alone, or they must be expelled altogether. Directlegal compulsion to produce only a limited range of cash crops,though it has been used in some colonies, was not of significance inthe American case.

What, in fact, brings about the separation of agriculture fromindustry while still leaving behind an agricultural peasant class isthe availability of cheap industrial products which make it worththe peasants’ while to specialize, rather than forcing specializationon them. She was generally reluctant to admit to the materialsuperiority of capitalist methods of production, in contrast to Marxwho always stressed the dual character of capitalism, at once brutaland progressive. She did, of course, describe the cheapness of theproducts of capitalist industry, the massive scale of its works, the

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enormous transformations that it has made, but always in such away as to stress the brutality behind it rather than the technicalachievements, where Marx always stressed both. Thischaracteristic of her thought reflects the general opinion amongMarxists at the time that capitalism was coming to an end and hadbecome a fetter on the development of the forces of production. Theenormous development of production since then suggests that thiswas an over-simple view.

She also discussed the use of money taxes to force peasants to sellproducts. This is certainly an important method, but it forces thepeasant to sell, not buy (it is the recipients of tax revenue who do thebuying), and it does not, therefore, explain how markets are createdamong the peasantry. At the same time she described howovertaxation, indebtedness, foreclosure of mortgages, and so on,were used to separate the American peasant from the land. Thisprocess leads, of course, to capitalist agriculture rather than to theseparation of industry from a peasant agriculture.

Luxemburg’s analysis focused on the distinction betweencapitalist and non-capitalist modes of production and not ondifferences or conflicts between nation states. This gives heranalysis its distinctive character and constitutes a large part of itsimportance. To deal with the developments of her own time (therun-up to the First World War), she clearly had to link her work tothe system of national states. I shall not spend long on this, sincethere is less of interest in it, and much of it depends on argumentsabout realization of surplus value that I have already dismissed asfalse.

The main ways in which the state intervenes, apart from thosedescribed already, are through international loans, protectivetariffs and armaments expenditure. Her basic argument was thatnon-capitalist markets are necessary to the existence of capitalism,and are becoming scarce, so there is a struggle between capitaliststates to establish spheres of interest and to bind them to the‘mother country’ with protective tariffs, to ensure a sufficiency ofmarkets for the capitalists of the state concerned. This argumentloses most of its force if, as I have argued, the need for externalmarkets is illusory. Her second line of argument remains; thestruggle for cheap labour and raw materials can explain inter-imperialist rivalry. This is, in fact, a component of the argumentsof Bukharin and Lenin (chapter 6). Her analysis was still rather


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weak, because the links between competing capitals andcompeting states were not spelled out.

International loans, she argued, serve to reduce backward butnominally independent states (for example Turkey) to servitude,though they can also serve to finance the initial development ofyoung capitalist states. They can finance the infrastructure(railways and the like) needed to incorporate new areas into thecapitalist sphere, and simultaneously allow the old centres ofcapitalism to participate in the exploitation of new areas. Forexample, tax revenue from pre-capitalist agriculture in Turkey waspaid as interest to German capitalists who had made loans to buildrailways. This emphasis on the interlinking of capitalist and non-capitalist forms of exploitation is valuable, and has been developedby more recent writers.

3.3 SUMMARY

Rosa Luxemburg’s work remains of seminal importance, despite itsanalytical failings. At a time when there was a danger that Marxistthought would focus exclusively on the advanced sectors ofindustry in the advanced countries, she forced Marxists to payattention to the masses of people who were being incorporated intothe capitalist mode of production, or who still remained outside it.In this her work parallelled that of Lenin (in The Development ofCapitalism in Russia, not Imperialism), in many respects heropponent.

Whatever its analytical failings, her real contribution was toinsist that the mechanisms of primitive accumulation, using force,fraud and state power, were not simply a regrettable aspect ofcapitalism’s past, but persist throughout the history of capitalism atthe margin where capitalist and pre-capitalist economic systemsmeet. This margin is not geographical but social, it exists withincountries rather than between them, and if the capitalist form oforganization had triumphed completely in a few places (England,for example), the unequal struggle still continued in vast areas of theworld.

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4

Hobson

J. A. Hobson was not a Marxist, but his influence on later Marxistwriters was so great that he cannot be ignored in a study of Marxisttheories. Lenin drew on Hobson’s ideas, and some writers even talkof a ‘Hobson–Lenin’ theory of imperialism, though that overstatesthe similarity between them. Baran and Sweezy followed Hobsonmuch more closely than Lenin did, though the similarity betweentheir work and Hobson’s has not been noted as frequently.

Hobson’s theory of imperialism is set out in his Imperialism(Hobson 1938; first edition 1902); the under-consumption theoryit is based on appeared in his first book, written jointly with A. F.Mummery (Mummery and Hobson 1889), and remained aconstant theme for the rest of his life. He introduced a line ofargument in which the emergence of widespread monopoly is saidto lead to under-consumption (or over-saving), growing foreigninvestment, and imperialist expansion. A simple version would runsomething like this: (1) monopoly increases the share of profit, andconcentrates it into fewer hands; (2) a large fraction of monopolyprofit is saved, so saving tends to increase; (3) domestic investmentopportunities are limited (it is sometimes also argued thatmonopoly reduces investment), so saving tends to outruninvestment; (4) excess saving produces a chronic lack of demand,unless some outlet is found; (5) capital export can provide an outletfor excess saving; (6) a pressure for annexation of territory emerges,to safeguard existing investments or to open the way for newinvestment. A second, related, line of argument links demanddeficiency to a search for external markets, and hence toannexation.


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Hobson’s Imperialism was primarily a polemic. He based his caseagainst imperialism on a cost-benefit analysis, arguing that the costswere high, and the alleged benefits either small or altogetherillusory. Imperialism, he said, is bad business, a line of argumentwhich goes back to the classical economists (at least). He backed thecase up with other arguments; imperialism was bad for democracy(because of the side effects of militarism), bad for the peoplessubjected to foreign rule (whatever the claims of the imperialists),bad for Britain’s reputation, and so on. On Hobson’s case againstimperialism, see Allett (1981) and Porter (1968). His explanationof imperialism was a by-product, which has to be disentangled fromthe anti-imperialist polemic. The key chapter, ‘the economictaproot of imperialism’, is constructed as a reply to the argumentthat imperialism is necessary, or at least desirable, to provide anoutlet for surplus capital or for surplus products. This idea, whichwas widely held at the time, has been called ‘the capitalist theory ofcapitalist imperialism’ (Etherington 1984). It presented aparticularly difficult challenge, because it had so much in commonwith Hobson’s own views.

He was committed to a theory of under-consumption in whichexcess saving leads to a chronic lack of demand. The idea thatforeign investment can provide an outlet for surplus saving is anatural extension of this under-consumptionist theory. If no othersolution were possible, imperialism would presumably be in theinterest of all classes (in the imperialist country), in order to staveoff depression and unemployment. Hobson’s reply was that incomeredistribution (‘social reform’) would remove excess saving andeliminate the need to invest abroad. The analysis of under-consumption and its causes was therefore a vital step in his caseagainst imperialism, as well as in his positive theory. His case forsocial reform obviously falls far short of a Marxist case for socialistrevolution, but that has not stopped Marxists drawing on histheoretical ideas.

The other half of Hobson’s positive theory emerges as an answerto the question: if imperialism was ‘bad business’, how had Britainbeen led into adopting it? (Hobson 1938: 46). His answer containsseveral elements. First, there are a number of interest groups whostand to gain from imperialism. Since imperialism is bad for the

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nation as a whole, they are a minority, but they occupy positions ofinfluence. Second, many support imperialism for misguidedreasons, in the belief that it is needed to provide markets, out of anill-informed nationalism, a desire to spread the supposed benefits of‘civilization’, and so on. Taken together, these explanations mightbe regarded as sufficient, though if this were all Hobson offered onecould hardly regard it as a distinctive theory. He did not, however,leave it at that. What unifies his account of the politics ofimperialism is his insistence that this motley collection of forces isdirected and channelled by a relatively small group of financiers.

Hobson’s theory, then, can be divided into two distinct elements,introduced for rather different reasons. First, there is an economictheory intended to explain high levels of foreign investment, and toshow that it would be unnecessary if income were redistributed.Second, there is a political theory linking foreign investment toimperialist policies. It is worth noting that these two aspects of thetheory need not stand or fall together. It could be that Hobson wasright in his explanation of foreign investment but wrongly believedthat it accounted for imperialism, or that he was right to linkimperialism to foreign investment but wrong in explaining thecauses of capital export.

4.1 UNDER-CONSUMPTION

Hobson argued that excessive saving can cause slumps. Investmentis needed to provide for (future) consumption, so if saving is toohigh, and consumption correspondingly low, saving may exceed theavailable opportunities to invest.

The object of production is to provide ‘utilities andconveniences’ for consumers. . . . The only use of Capital beingto aid the production of these utilities and conveniences, thetotal used will necessarily vary with the total of utilities orconveniences . . . consumed. Now saving, while it increases . . .Capital, simultaneously reduces the quantity of utilities andconveniences consumed; any undue exercise of this habit must,


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therefore, cause an accumulation of capital in excess of thatwhich is required for use. (Mummery and Hobson 1889: v)

The argument is quite general; it does not matter whether saving ishigh because of monopoly or simply because people happen to wantto save a great deal.

The notion of ‘under-consumption’ or ‘over-saving’ has beenseverely criticized, since investment constitutes a demand for goods(machinery, and so on) on a par with consumption demand.

Once we accept the importance of the investment goodsindustries, [Mummery and Hobson’s] argument falls to theground. The demand for investment goods has nothing to dowith the expenditure of consumers, but depends on theprofitability expectations of capitalists. (Bleaney 1976: 157)

Bleaney’s criticism, as it stands, goes too far. Mummery and Hobsondid not ignore the demand for investment goods; they argued that itdepends on the immediate future demand for consumer goods (e.g.1889: 27–8). They also admit that investment can run ahead of thislevel, but they argue that excessive stocks of capital have noeconomic value (1889: 35). Unused capital cannot be piled upindefinitely.

The core of truth in the criticism is that Mummery and Hobsonoften argue as though future consumption were fixed, andinvestment possibilities fixed with it. Suppose, for example, that aneconomy is growing steadily with no problems, and that savingincreases. According to Mummery and Hobson, it seems that excesssaving would necessarily emerge. Against that, one could argue thatincreased saving would lead to an increased rate of growth ofoutput, and hence of incomes and of consumption. Any rate ofsaving can be accommodated by an appropriate rate of growth.Mummery and Hobson could reasonably reply that growth islimited by the availability of labour and natural resources. That isindeed what they assumed (e.g. 1889: 29). They did not stress thepoint, and it is not clear to me that they appreciated its significance,but it saves their case. If the amount of capital that can be used isconstrained by the supply of labour, or of other essential inputs,

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then extra saving cannot necessarily be absorbed by an acceleratedgrowth rate, and the over-saving problem returns.

The under-consumptionist case is still not established. Amainstream economist can argue that excess supply of investmentfunds will drive down the interest rate, and eliminate the problem.Mummery and Hobson discussed this objection, but not veryconvincingly (1889: 130-1), because they thought that an increasein consumption is needed to eliminate the excess saving. A fall in theinterest rate certainly could eliminate an excess supply ofinvestment funds by reducing savings. The evidence suggests thatindividual savings do not respond much to a fall in interest rates,though the resulting shift of income away from rentiers may reduceaggregate savings. So far, so good, for the under-consumptionists.Lower interest rates, however, could also help to absorb additionalsaving by encouraging the use of more capital-intensive methods ofproduction (because capital is relatively cheaper), so a given labourforce uses more capital. High savings could lead to a progressiveincrease in the capital-labour ratio, with a falling interest rate, untilthe capital-labour ratio is high enough for saving to be absorbed inmaintaining the new, higher level of capital intensity. Growth andcapital models of this sort are now commonplace: for example,Solow (1956). Mummery and Hobson seem to have been socommitted to the notion of fixed relations between capital andoutput (e.g. 1889: 23-8) that they never considered substitution ofcapital for labour as a possibility.

To summarize, if the labour force is limited, if saving isunresponsive to interest rate changes, and if production methodsare fixed (or possibilities of substitution limited), it is possible forexcessive saving to cause depression. The first two conditions arequite plausible, the third is more doubtful.

4.2 MONOPOLY AND CAPITAL EXPORT

In his later work, Hobson blamed excessive saving on inequality inthe distribution of income, with monopoly as one possible cause ofinequality. (The first time around, with Mummery, he argued thatexcess saving might be a problem, without saying much about thereasons for high savings.)


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If a tendency to distribute income . . . according to needs wereoperative, it is evident that consumption would rise with everyrise of producing power, for human needs are illimitable, andthere could be no excess of saving. But it is quite otherwise[when some have] a consuming power vastly in excess of needsor possible uses. (Hobson 1938: 83)

The inconsistency in the quotation is characteristic of Hobson’srather casual style (if needs are illimitable how can income exceedneeds?), but the message is clear enough; excess saving may occurwhen some have high incomes and save a lot, while others wouldlike to spend more but do not have any income to spend.

Monopolies (‘trusts’) appear as a rather secondary factor: anycause of inequality would do as well. They matter because theyrepresent a plausible explanation for an increase in inequality,particularly in the USA, in the late nineteenth century (Hobson hadno direct measures of inequality), and may thus help to explain theemergence of inter-imperialist rivalry. Monopolies may increaseprices, and hence profits and inequality, and they might also reducewastage of capital, reducing costs, increasing profit, andsimultaneously reducing the amount of capital required (Hobson1938: 75-6). Subsequent discussion has mostly concentrated on theincrease in profits. A reduction in the capital used to produce a givenoutput is a possible, but not inevitable, outcome of the formation ofa trust. It depends on the market structure before and after thechange. In some market structures firms may be uneconomicallysmall (monopolistic competition), in others they may deliberatelyhold excess capacity, and hence excess capital, in order to be able tothreaten competitors with a price-cutting war. Hobson did notmake it clear exactly what he had in mind. In any case, the result issimilar to a profit increase, so I shall concentrate on that case.

When saving exceeds the scope for domestic investment, ownersof capital look for investment opportunities abroad (Hobson 1938:77-8). I have argued above that Hobson’s argument is only valid ifoutput and investment are constrained by a limited supply oflabour. If his case is to make any sense, it must therefore bereformulated in those terms. The question then is: what happenswhen monopoly becomes more widespread, if labour scarcity

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prevents the economy from growing any faster, and a large fractionof monopoly profit is saved?

Consider first the effects of increased monopoly in the absence offoreign trade and investment. If a monopoly replaces competitivefirms in a single industry, it produces less, and sells at a higher price.It therefore employs less labour and less capital. If the shift tomonopoly is widespread, the demand for labour falls, so wages fall,and the demand for investment funds falls, bringing down theinterest rate. Monopoly profit accounts for an increased share oftotal income, while the shares of wages and interest are reduced. Itis important to distinguish between monopoly profit and interest;Hobson did not make a clear distinction. The share of profit(interest plus monopoly profit) rises initially, so saving rises (recallthat saving out of profit is assumed to be high). There is a minorcomplication to deal with here, for completeness. As more capital isaccumulated, the demand for labour rises, and the wage will riseback towards its initial level. Hobson does not seem to haverecognized this, but it is a necessary consequence of assuming thatlabour is scarce (as it must be, for his argument) and that wages aredetermined by supply and demand. As wages rise, the return toinvestment falls, and the interest rate will be forced down evenfurther. Over time, then, the burden of monopoly profit must be, atleast partially, shifted from wages to interest. To the extent thatmore capital-intensive techniques are adopted in response to lowerinterest and growing wages, the fall in interest will be slowed down,and wages will remain below their level in a competitive system.

The main conclusion so far is that increased monopoly will tendto force down interest rates; this is simply the reflection of anincrease in the supply of capital, as a result of increased saving,relative to the demand for capital. If interest rates are flexibleenough, a closed economy may be able to absorb the effects withoutchronic depression, but it is quite easy to justify Hobson’sconclusion that monopoly leads to oversaving and to a slump.

In a theory of imperialism, it is the effect of monopoly in an openeconomy that counts. Consider trade in goods, without export orimport of capital. By definition, trade must be balanced(unbalanced trade corresponds to capital inflows or outflows), soexports cannot make up for deficient home markets across the


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board. This does not necessarily nullify Hobson’s claim thatimperialism is motivated by the search for export markets, becauseeach business may think, rightly, that enlarged export markets forits own product would be good for it, without taking account of theindirect effects. Balanced trade may help to alleviate the effects ofover-saving indirectly, since a low interest rate means relatively lowprices for capital-intensive goods, and a shift of exports towardscapital-intensive industries is equivalent to substitution of capitalfor labour. It should also be noted that increased monopoly in some,but not all, industries would tend to change the pattern of trade; onecannot say much in general about the likely results.

In any case, it is capital export that is important for the theory. Ifthe interest rate falls, because of increased saving, while the returnson investment (or lending) abroad do not, capital will flow out tothe relatively more attractive investment opportunities abroad.Hobson’s conclusions on this essential point survive. Note that it isnot necessary to assume that the capital-labour ratio is fixed toconclude that monopoly will encourage capital export, since afalling interest rate can cause both capital-labour substitution athome and export of capital. It is true that the scope for foreigninvestment may itself be limited, in the end, by the same factors thatlimit home investment. However, if scarcity of labour matters, as Ihave argued, surplus labour in underdeveloped areas can help.Large investments may be needed to open up new areas, and, in anycase, imperialism can be explained by a struggle for control oflimited opportunities. (See Allett 1981: 145-6.)

Hobson may have tried to prove too much. He did not need toargue that there is excess saving to explain a search for exportmarkets and for investment opportunities abroad. First, it is alwaystrue that owners of capital will search for better investmentopportunities, even if it is quite possible to obtain a modest returnat home. Second, and more to the point here, wherever competitionis less than perfect (i.e. almost everywhere), firms find that theirsales are limited by the extent of the market for their particularproduct. They are always anxious to expand their sales, byexporting or by setting up production abroad, whether there is anyoverall deficiency of demand or not. Even if the stronger forms ofunder-consumption are rejected, for example if additional saving

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could always be absorbed through a fall in the interest rate, theexplanation of foreign investment survives.

It may be, however, that Hobson’s theory misses the real reasonsfor the upsurge of capital export from the main capitalist countriestowards the end of the nineteenth century. Consider Britain. Thetheory says that excess saving is the result of inequality in incomes;to explain the rapid growth of capital export in the late nineteenthcentury as a result of over-saving, as Hobson did, would requiregrowing inequality in that period. The available evidence suggeststhe reverse; the share of wages and salaries in national income wasgrowing, albeit slowly. It has been argued that large capital exportsfrom Britain were the result not of high savings, but of an unusuallylow rate of domestic investment (Foreman-Peck 1983: 130). In anycase, few would argue that monopoly was an important factor inBritain at that date.

One might try to save the theory by arguing that Britishexpansionism was a response to increasing threats from rivalpowers, where monopoly and inequality were increasing. Thatseems to have been Hobson’s line of argument; he stressed the entryof the USA into the race for colonies (Hobson 1938: 72-9). The USAdid switch from being a net importer of capital to a position of nearbalance, but the main switchover seems to have been completedaround 1870, earlier than Hobson suggested, and rather early to bedescribed as a result of monopoly. From about 1880 to 1910, littletrend is visible (Foreman-Peck 1983: 129, fig. 5.1).

The main problem in applying Hobson’s theory to the facts ofhistory is that it describes what would happen if monopoly grew, or,more generally, if inequality increased, while other factors remainedconstant, which they did not. Capital export may have increasedbecause of a push of falling interest rates and lack of investmentopportunities at home, but it could equally well have increasedbecause of the pull of improved profit opportunities or reducedrisks elsewhere. Even if the push explanation is preferred (as it is byEdelstein 1982), the push might be explained by factors outsideHobson’s theory.


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4.3 THE POLITICS OF IMPERIALISM

Hobson’s main concern was with the expansion of the Britishempire in the period from 1870 to the turn of the century (when hewas writing). The bulk of the territories acquired during this periodwere in tropical Africa and Asia, and were already well populated;they were not likely to prove suitable for large-scale Europeansettlement. He noted the growing inter-imperialist rivalry of theperiod, which he regarded as dangerous, and as relatively new. TheUnited States had entered the race particularly suddenly, but so hadothers. He enumerated the financial costs, mainly in terms ofmilitary spending, attributing nearly all of military spending toimperialism, on the grounds that inter-imperialist rivalry was themain source of international tension. He also argued that militarismand similar developments are more generally harmful. These costscould not be justified by the benefits of trade with subject territories,since trade with the tropical empire was small, growing slowly, andnot dependent to any very large extent on political control.

To assess the costs and benefits of imperialism, it is necessary tohave some alternative in mind. Hobson was in a difficult position,because he held that there is a chronic tendency to over-saving.Empire may provide investment opportunities and preserveemployment, benefiting a large part of the population. If so, it couldbe rational, from a national point of view, to support imperialism;this is the ‘capitalist theory of capitalist imperialism’. Hobsonavoided this conclusion by suggesting a better alternative for themajority of the population; if income were more equallydistributed, saving would fall, and a shortage of investmentopportunities would cease to be a problem. The costs of imperialismcould be avoided.

If imperialism is bad business, why does it happen?

The only possible answer is that the business interests of thenation as a whole are subordinated to those of certain sectionalinterests. . . . This . . . is the commonest disease of all forms ofgovernment. (Hobson 1938: 46)

He listed the interests involved, including the armaments trade,export and shipping trades, the armed forces, those who find jobs

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in the apparatus of empire, and so on. There is nothing very originalabout this; it is in a direct line of descent from Adam Smith’s attackon mercantilism as the creature of special interests.

What makes Hobson’s story distinctive is the central role heassigned to the financiers, who ‘form the central ganglion ofinternational capitalism’.

United by the strongest bonds of organization, always in closestand quickest touch with one another, . . . they are in a uniqueposition to manipulate the policy of nations. . . . Every greatpolitical act involving a new flow of capital, or a largefluctuation in the values of existing investments, must receivethe sanction and practical aid of this little group of financialkings. (Hobson 1938: 56-7. I have omitted implicitly anti-semitic remarks; his earlier writings on the Boer war werevirulently anti-semitic.)

The main gainers from imperialism are investors. British policyhas been ‘primarily a struggle for profitable markets of investment’(1938: 53), and ‘the period of energetic Imperialism’ was also theperiod in which income from foreign investments grew rapidly(1938: 52). Investors stand to gain from annexations which reducepolitical risks, especially if they have invested already on termswhich take account of risks; as the risks are eliminated, the value ofthe investment increases. Financiers also gain from any source ofturbulence in the values of investments, since their position asinsiders allows them to speculate successfully. This may appearinconsistent (investors seek the elimination of risks, financiersthrive on them), but presumably the capital gains when risks arereduced are among the changes in value that offer good prospectsfor insiders.

To get their way, the financiers must build a pro-imperialistcoalition. The interests already listed can all be recruited. Politicalsupport can be bought, and influence can be exerted indirectly,through pressures on newspapers, and soon.

The controlling and directing agent . . . is the pressure offinancial and industrial motives, operated for the direct, short-range, material interests of small, able, and well organized


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groups. . . . These groups secure the active cooperation ofstatesmen . . . partly by associating them directly in theirbusiness schemes, partly by appealing to the conservativeinstincts of . . . the possessing classes. . . . The acquiescence . . .of the body of a nation . . . is secured . . . by playing on theprimitive instincts of the race. (Hobson 1938: 212)

Some have argued that Hobson had a psychological theory ofimperialism, because he stressed irrational or non-rational motives(Mitchell 1965; see also Semmel 1970: 223). Irrational motives are,it is true, among the (many) factors that Hobson discussed (‘theprimitive instincts of the race’) but he repeatedly stressed that theyare channelled and harnessed by the financiers. In particular,psychological motives play no role in determining the direction,timing, or character of imperial expansion. They might perhaps bea necessary condition, but beyond that they play no explanatoryrole. Hobson himself was quite clear about their subordinate role:

aggressive Imperialism . . . is not in the main the product of blindpassions of races or of the mixed folly and ambition ofpoliticians. It is far more rational than at first sight appears. . . .it is true that the motive power of Imperialism is not chieflyfinancial: finance is rather the governor of the imperial engine,directing the energy and determining its work. (Hobson 1938:47, 59)

Etherington (1984: 70) described the section of the book onfinanciers as ‘so irrelevant to Hobson’s other economic argumentsthat one wonders why he included it in the book’. Cain (1978: 568)accepted that Hobson did stress the role of financiers, but regardedit as a passing aberration, a ‘return to the old radical obsession withthe financier as demon king’. He presented evidence that Hobsonmodified at least some of his views later; maybe so, but he reprintedImperialism as late as 1938, after a long interval. The conspiracytheory element in Hobson’s argument distressed Cain (1985), as itdid Etherington; they are right to argue that the theory could bereformulated without it, but the fact remains that it is precisely theconspiracy of financiers that gives Hobson’s theory whatexplanatory force it has. Without their directing intelligence, the

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theory loses its distinctive character, and becomes merely a list ofpro-imperialist forces; it cannot offer any explanation of the patternor timing of imperialist advance. (I shall argue that even with thespecial role of the financiers the theory does little better.)

A related issue is whether, as Cain (1985) argued, Hobson saw aconflict between the interests of industry and finance. He certainlysaw a conflict between the interests of the financiers and the Britishpeople (which were best served by social reform), but whether hesaw a conflict between the interests of industrial capitalists and offinanciers (except in incidental matters) is more doubtful. Aconsiderable range of industries are listed among the gainers fromimperialism, while capitalists as a whole presumably have aninterest in resisting redistribution of income. In the absence of socialreform, overseas investment is better for the industrial capitaliststhan no investment at all; the real problem is under-consumption.Incidentally, there is some evidence that Hobson had a concept of‘finance capital’, similar to that of Hilferding (discussed in the nextchapter): a fusion of financial and industrial capital, with finance inthe driving seat. In his discussion of America (1938: 75-7), forexample, Hobson argued that imperialism emerged when financiershad taken control of major industries within the country: therecould hardly be a conflict between industrial and financial capitalin this case.

What holds the story together, and provides it with anyexplanatory power it has, is the directing role of the financiers.Unfortunately, Hobson did not define the interests of the financiersat all sharply. They are said to have an interest in controlling existingpotential future destinations for investment. Since one of the aimsis to reduce risks, those areas where risks are low, or where conquestis impracticable may be left alone; it is no refutation of the theory topoint out that the USA was a major destination for Britishinvestment, but Britain did not attempt a (re)conquest. Nor wouldit refute the theory to argue that many of the territories annexed inthe late nineteenth century turned out to be quite valueless,provided they could reasonably have been expected to yield a return(no-one claims that financiers could see into the future). By thenature of the theory, it is no refutation to argue that the costs (to thenation) exceeded the returns. Since the financiers are said to have


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had an interest in turbulence for its own sake, any adventure,however wild, could be accounted for.

The trouble is not that the theory fails to explain the facts, butthat it explains them too easily; it could explain almost anything. Asatisfactory theory of imperialism must offer some more specificexplanation of the pattern and timing of imperial expansion.Hobson did suggest a variety of relevant factors, which is a usefulstep, but no more. His theory therefore falls at the last hurdle. It isnot, however, clear that any of the other theories surveyed in thisbook does very much better, and later writers, Marxist and non-Marxist, have drawn on his ideas extensively.

4.4 SUMMARY

Under-consumption is an important element in many theories ofimperialism, so it is worth bringing the case against it together. Thebasic idea is that consumption demand is special, becauseconsumption is the real aim of economic activity, while investmentis subordinate to it, because investment exists to provide for futureconsumption. This is where the confusion starts. For an individual(or a planned economy), consumption may be the ultimate aim. Amarket system, however, is not the sort of thing that has an ultimateaim; it is no more than a mechanism, and one kind of demand is justas good as another in generating profits.

If consumption is too low, it is said, there will be a lot of saving tobe invested, and a lack of opportunities to invest (because lowconsumption means low demand and hence low investment). Thisis a very naive view of investment, which ignores both the scope foreconomic growth and the scope for capital-intensive methods ofproduction. For an under-consumption theory to work, it mustshow why neither of these escape routes is possible. Luxemburgmade no attempt to do so, and her under-consumption argumentscannot be taken seriously. Hobson got quite a way further, but hisis still a rather special and rather unconvincing case. Other versionswill be discussed in later chapters.

How much does the failure of under-consumption theoriesmatter? If the aim is simply to explain foreign investment (which can

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be an important element in a theory of imperialism), then it does notmatter much. Foreign investment can be explained without usingstrong forms of under-consumption. However, any claim thatcapitalism could not survive without external investment has to beabandoned.

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5

Hilferding

Between 1900 and 1920, the concept of imperialism wasintroduced into Marxist theory, and a definite theory of imperialismwas constructed, by three writers: Rudolf Hilferding, NicolaiBukharin and Vladimir Ilych Lenin. I shall call their theories the‘classical Marxist theories of imperialism’, since I use the term‘classical Marxist’ to mean Marxist writers from Marx to Lenin andTrotsky; Marx himself did not have a theory of imperialism.

It is not easy to separate the contributions of these three writers.Hilferding came first, and his massive Finance Capital containsalmost every major point made by the others. It could therefore beargued that he deserves the real credit. He did not, however, put hisarguments together into a definite concept of imperialism.Bukharin, in his Imperialism and World Economy transformedHilferding’s picture of developments inside the advanced capitalistcountries into a coherent theory of the transformation of the worldeconomy. I shall argue that Lenin’s contribution, in his Imperialism,the Highest Stage of Capitalism, was primarily to popularize thetheories of Hilferding and Bukharin, and to introduce ideas takenfrom Hobson. These judgements are based solely on the publishedrecord. The period before the First World War was one ofunprecedented creative ferment in Marxist circles, both in Viennaand Berlin, where Hilferding worked, and among Russian emigrés.Ideas were in the air, especially about imperialism, and their originalsources may be hard to trace.

It is easy to misunderstand the classical Marxist theories ofimperialism, since the very word has expanded and altered itsmeaning. Today, the word ‘imperialism’ generally refers to thedominance of more developed over less developed countries. For

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the classical Marxists it meant, primarily, rivalry between majorcapitalist countries, rivalry expressed in conflict over territory,taking political and military as well as economic forms, andtending, ultimately, to inter-imperialist war. The dominance ofstronger countries over weaker is certainly implicit in thisconception, but the focus is on the struggle for dominance, astruggle between the strongest in which the less developed countriesfigure mainly as passive battlegrounds, not as active participants.

The classical Marxists have often been accused of Euro-centrism,and the charge is, to a fair extent, justified. Their concentration onthe most advanced countries reflected the political realities of thetimes. Hilferding wrote during the build up to the First World War,Bukharin and Lenin after the war had started. The socialistmovement had to hammer out a policy towards the war. All threethought of socialist revolution in the advanced countries as thenecessary route towards socialism and the precondition for advancein less developed areas.

All of the writers named saw themselves as up-dating Marx totake account of a development that had taken place since Marx’stime (though Marx had predicted it), the rise of monopoly. The term‘monopoly’ in mainstream economics is used to mean a single sellerwho has no rival within a given market. In the Marxist tradition,however, ‘monopoly’ is used more broadly to refer to any majordeparture from atomistic competition. Where there are relativelyfew producers we can speak of a growth of monopoly, withoutexcluding very fierce competition. Competition, in this case, doesnot take the form of price competition in a relatively impersonalmarket, as it does for competitive capitalism, but is instead a directrivalry which can take a great variety of forms.

5.1 FINANCE CAPITAL

Hilferding’s major work, Finance Capital (Hilferding 1981, citedbelow as FC), was mostly written around 1905 in Vienna, but notcompleted and published until 1910, in Germany. It was mainlyconcerned with the internal development of advanced capitalistcountries. I will have to examine this aspect of Hilferding’s work,since it is basic to his treatment of imperialism as well as to much


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work by subsequent writers, but I cannot go into detail, since it fallssomewhat outside the scope of this book.

He started with a lengthy, interesting, but rather eccentric,treatment of the theory of money, a topic which I will pass overentirely here, only remarking that the obscurity of this first part ofthe book may well be one reason why the work as a whole has beentreated with a kind of respectful neglect.

The next major element in his argument was the rise of the jointstock company as a new form of organization for the capitalist firm.A joint stock company is, in effect, a coalition of capitalists whoshare the profits and control of the firm in proportion to theirshareholdings. Hilferding’s treatment of the joint stock company,although it has some points in common with Marx’s veryfragmentary comments on the subject (Capital: III, ch. 27: 427ff.),is really the first thorough Marxist discussion of this importanttopic.

The formation of joint stock companies (modern corporations)represents a modification of the function of the capitalist. Theprevious form of organization, the individual enterprise, waslimited in size by its owner’s wealth, and could only grow to theextent that the individual capitalist saved the profits and ploughedthem back. The joint stock company can assemble capital frommany small shareholders, allowing the amalgamation of manycapitals into one. At the same time, personal wealth ownership maybe concentrated into fewer hands by the opportunities for swindlingand speculation in shares, and the manipulations which holders ofcontrolling blocks of shares can carry out. Hilferding stressed theway owners of large blocks of capital could use the joint stock formof organization to gain control of the capital of many smallshareholders. Whatever its effects on the concentration of personalwealth, the rise of the joint stock company represented a massiveconcentration of economic power as well as a concentration ofproduction. This was a fairly common theme among left-wingwriters of the time; it was, after all, the time when magnates likeRockefeller and Carnegie were demonstrating the potential of thesefinancial manipulations in practical terms.

The context is the process of concentration and centralization ofcapital, in which larger capitals drive out small, generating a

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tendency to monopoly. This process was central to Marx’s workand to virtually all subsequent Marxist thought, and was veryvisible in the main capitalist countries at the time, especiallyGermany and central Europe. The development of the joint stockcompany simply accelerated the tendency to concentration alreadyat work. Hilferding discussed the different forms which thecentralization of capital can take in considerable detail.

The rise of monopoly in one sector has consequences for othersectors which deal with it, creating ‘relations of mutual dependenceand dominance’. In a competitive system where each firm has manypotential suppliers and customers, it can be relatively indifferent tothe policies of any single firm. Where the firm has only a fewcustomers or suppliers it cannot be indifferent: a relation of mutualdependence grows up. As long as the firms that deal with each otherare independent, there will be a struggle for dominance, since thereare direct conflicts of interest between them (over the price at whichthey trade, for example). Hilferding asserted that: ‘In the relationsof mutual dependence between capitalist enterprises it is theamount of capital that principally determines which enterprise shallbecome dependent upon the other’ (FC: 223). In particular, where arelatively competitive industry deals with a monopoly or cartel, itwill fall under the control of the monopoly. Competitive firms willbe reduced to the status of mere agents, unless they react by formingtheir own cartel or amalgamating in self-defence. In either case themonopolized sector of the economy will be effectively expanded.Monopoly is thus, in a sense, contagious: beyond a certain stage ittends to spread very rapidly. Hilferding saw the rapid spread ofmonopoly, and the tight linking together of different sectors of theeconomy by direct relations of interdependence and dominance (inplace of impersonal market links), as a fundamental transformationof capitalism.

For Hilferding, the central actors in the growth of monopolywere the banks. I have omitted all mention of banks from thepreceding pages to show that the main lines of Hilferding’s accountof the emergence of monopoly capitalism do not depend on histheory of the role of the banks. Hilferding’s emphasis on the role ofbanks is dubious, because it was based on Germany, where the


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banks did play a central role. In other countries, essentially the sameresults came about in rather different ways.

The main function of banks is to centralize money capital,gathering together idle funds (capitalists’ reserves, depreciationfunds, and the like, as well as the savings of other social strata). Onthe principle of ‘pooled reserves’ most of the money can then be re-lent for productive (profitable) use, with only a relatively smallportion held in cash as reserves. In Germany, banks also carried outa wider range of functions (acting on behalf of their customers in thebuying and selling of shares, for example, as well as holding sharesthemselves), so they effectively controlled all the sources of moneycapital and thus, as a group, had enormous potential power. As longas banking was relatively competitive this made little difference: ifone bank refused a loan there were others to turn to. However, thebanks were in the forefront of the tendency towards monopoly, andin Germany the number of major banks fell to nine and then to six.(See Bukharin 1972a: 71; Lenin 1950: 210ff. Hilferding only gavefactual detail in passing: e.g. FC: 121 n18.)

Given the rapid development of monopoly in banks, togetherwith the concentration of control over all major sources of finance,it is easy to see how banks came to play a dominant role in the tightlyinterconnected and hierarchical capitalist system that Hilferdingdescribed. The banks, in turn, have a strong interest in promotingcartelization among their clients, since this reduces the risk that thefirms to whom they have lent money will go bankrupt, and inpromoting mergers so that the weaker firms are absorbed by thestronger (safeguarding the bank’s money) rather than being drivento the wall by competition.

Hilferding summed up these transformations in his concept offinance capital, undoubtedly his best-known contribution to thevocabulary of Marxism. Marx analysed the division of capital intothree fractions: industrial capital (productive enterprises, includingcapitalist agricultural enterprises), financial capital (banks andsimilar capitalist enterprises dealing in money capital), andcommercial capital (merchant’s capital; buying and selling goodsrather than producing them). Hilferding argued that the separationof industrial and financial capital, which was characteristic of theera of competitive capitalism, disappears in the epoch of monopoly

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capitalism. Finance capital is the product of the fusion of industrialand financial capital. It is therefore vital not to confuse financecapital with financial capital.

Hilferding argued that as bank deposits grew, and opportunitiesfor investment in commerce declined (because monopolies takedirect control of buying and selling), the banks were effectivelyforced into investing directly in production.

An ever-increasing part of the capital of industry does notbelong to the industrialists who use it. They are able to disposeover capital only through the banks, which represent theowners. On the other side, the banks have to invest an ever-increasing part of their capital in industry, and in this way theybecome to a greater and greater extent industrial capitalists. Icall bank capital, that is, capital in money form which is actuallytransformed in this way into industrial capital, finance capital.(FC: 225, emphasis added)

The concept of finance capital, as Hilferding presented it, is notentirely unambiguous. At a very simple level it is a label for that partof the total capital which comes into the hands of industrial capitalvia the banks or, more generally, via the financial system. Hilferdingfrequently used it, however, to indicate a unit of control: that partof a (capitalist) economy which is under the control of the banks.Perhaps the way of looking at it which best covers the wayHilferding and his successors have used the term, is to understand‘finance capital’ as that fraction of capital in which the functions offinancial capital and industrial capital are effectively united, inwhich the assembly of funds from a variety of sources is carried outby the same enterprise that effectively controls the productive use ofthe funds.

If this generalization of the concept is accepted, it opens the wayto regarding the large multinational companies of today as part offinance capital. These companies are certainly not under the controlof banks, but their head offices do perform many of the functions offinancial capital in raising money from many sources (includingsmall shareholders, by share issues), and also channel flows ofcapital from one subsidiary enterprise to another. Hilferding


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recognized the analogy between joint stock companies and banks,in that both can assemble capital from many sources (FC: 122). Ifwe are to speak of an epoch dominated by finance capital it isessential to widen the concept and free it of its association with thedominance of banks, which was not found in all advanced capitalistcountries.

Hilferding recognized that the role of the banks was ratherdifferent in England, where banks only gave credit for circulationand did not finance long-term capital investments. The result was alow interest rate on bank deposits, with the public buying shares viathe stock exchange. Industry was therefore less dependent on thebanks (FC: 225). He explained the greater dominance of thebanking system in Germany, probably correctly, by the later andmore rapid development of capitalism in Germany. In England,wealth became concentrated into the hands of industrial capitalistsover a long period of time. German industrialists, to catch up, hadto draw on the savings of other classes through the banks andthrough the formation of joint stock companies (FC: 306). Thisexplanation should, perhaps, be taken a step further; the slowerpace of development in England, together with the development ofparts of the financial structure during the period dominated bymerchant’s capital, led to the emergence of a more varied financialsystem in which various financial functions, united in the banks inGermany, were carried out by different parts of financial capital(stockbrokers, merchant banks, clearing banks, etc.). There is nodoubt that the whole process of concentration and centralizationwas somewhat retarded in Britain. This has substantial implications(since Britain, the least monopolized of the great powers, had thelargest empire), but the explanation is probably fairly simple. Thecompetitive struggle enforces the centralization of capital and,given Britain’s relative lead in industry, the pressure of competitionwas felt less than in slightly less developed countries.

This section is best summed up in Hilferding’s words:

Finance capital signifies the unification of capital. Thepreviously separate spheres of industrial, commercial and bankcapital are now brought under the direction of high finance, inwhich the masters of industry and of the banks are united in a

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close personal association. The basis of this association is theelimination of free competition among individual capitalists bythe large monopolistic combines. This naturally involves at thesame time a change in the relation of the capitalist class to statepower. (FC: 301)

5.2 PROTECTIONISM AND ECONOMIC TERRITORY

Protective tariffs, that is taxes on goods imported into a territory,placing them at a disadvantage relative to locally produced goods,play a crucial role in Hilferding’s arguments. This may seemsurprising, since tariffs are often regarded as rather trivial andboring things best left for specialists to debate. We have to remindourselves that the triumph of industrial capital in England wasmarked by the abolition of the Corn Laws (a form of protection ofagriculture) and that protectionism versus free trade was the majorissue of economic policy in all the advanced capitalist countries atthe time Hilferding was writing. It is interesting to note, in passing,Hilferding’s almost naive faith in the efficiency of free trade. Freetrade ‘would ensure the highest possible labour productivity andthe most rational international division of labour’ (FC: 311). Thistypically classical Marxist belief in the efficiency of capitalism indeveloping the forces of production would not be shared by manyMarxists today.

Hilferding, like Luxemburg, stressed the competitive pressure tomake the maximum possible use of the different natural conditionsand resources to be found in different parts of the world, and theimportance of large-scale operations in reducing costs. Capitalistsmust always seek, therefore, to maximize the territory open to themfor their operations. The importance of tariffs is that they define adistinct national territory. With free trade, the advantages of a basein a large, rather than small, national territory would be minimal,but once protective tariffs are established and the scope forinternational trade shrinks, the size of the national territory is muchmore important. Small countries (he cited Belgium) are generally infavour of free trade.

Why then should tariffs be imposed? In the epoch of competitiveindustrial capital, ‘infant industries’ sought protection from foreign


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competition to enable themselves to get started. England, as the firstindustrial nation, did not need tariffs to the same extent, and wasthe protagonist of free trade, but as other countries embarked onindustrial development, they felt the need for infant industry tariffs.Hilferding argued that these infant industry tariffs, if successful,were self-liquidating in competitive capitalism. Once the industryreaches the stage at which it starts to export, the exported goodshave to be sold at the world market price and competition ensuresthat the price on the home market matches the export price. If thehome market price were above the export price, firms would switchproduction to the more profitable home market until thedifferential was eliminated. Once home and foreign prices areequalized, the tariff is ineffective.

The rise of monopoly transforms the role of tariffs. Hilferding’sarguments rely critically on the idea that it is much easier tomonopolize a national market for a particular product than it is tomonopolize the world market. He argued this mainly on thegrounds that a much higher degree of concentration of capital thanthat yet achieved would be needed for cartelization to be possible ona world scale, as well as that ‘cartels do not become as firmlyestablished’ on an international basis (but why?) and that therewould be resistance to foreign-based cartels. These are not verystrong arguments, at least as Hilferding put them (FC: 312), and itseems that he did not realize how crucial they are to his wholeargument. He simply took it for granted that cartels must form ona national basis, and it was Bukharin, for whom the subject of studywas the world economy, who really saw that this was a problem.Both Bukharin and Lenin devoted more attention to the possibilityof cartelization on a world scale because they wished to refuteKautsky’s theory of ‘ultra-imperialism’, a topic I will take up in thenext chapter.

Given the impossibility of monopolizing the world market,tariff protection is necessary for trusts or cartels formed on anational basis to get any advantage from their monopoly position.Without protection, imports would pour in and undercut themonopoly as soon as the price was pushed above the world marketlevel. The extent to which a national monopoly can raise the priceabove the world market price is directly determined by the tariff,up to the monopoly price level which they would set if the market

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were completely isolated. Thus monopolies and finance capitalhave a direct interest in increasing the level of protection. The laternineteenth and early twentieth centuries, the period of the rise ofmonopoly, also saw protectionism become much morewidespread, after a period in the mid-nineteenth century when thetendency was, rather hesitantly, towards free trade. This analysisof tariffs was not original to Hilferding. It was hinted at by Engels,and widely discussed in the economic literature of Hilferding’stime. Hilferding’s contribution was to build it into a Marxistanalysis of the rise of finance capital. (See the references inBukharin 1972a: 75 n2.)

Hilferding’s argument that monopolies seek tariff protectiononly applies to particular sectors. If a tariff is imposed on all goods,and if their prices rise correspondingly (prices of imported goodsrise because the tariff is actually paid, home market prices ofexported goods rise because of the scope for monopoly price fixingcreated by the tariff), then wages will, in a Marxist framework, haveto rise in money terms to keep real wages (the value of labour-power) the same. Monopoly profits, in Hilferding’s framework,should be seen as a redivision of surplus value, increasing the profitof the monopolies at the expense of remaining competitive sectors.He was not very consistent on this point, since he describedmonopoly prices as ‘a tribute’ imposed on consumers as a wholeand not ‘a deduction from the profit of the other non-cartelizedindustries’ (FC: 308). He also argued that heavy industry was notvery concerned about increases in the cost of living because labourcosts are relatively unimportant given the high organic compositionof capital (FC: 309). This will not really do, since wage increases willaffect the price of the means of production used by heavy industryas well as their direct labour costs, and protection wouldpresumably push up the prices of means of production anyway. Hedid, on the other hand, consider the possibility that protectionismmay reduce the overall rate of profit through the reduction inefficiency which follows from a reduction in the internationaldivision of labour. The fact is that he did not have a complete theoryof wages, or of prices and profits, in an economy where prices areaffected both by monopoly and by external prices modified bytariffs. This cannot really be held against him, since I know of noone else who has such a theory.


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We have seen that tariffs on exported (or potentially exported)goods are ineffective in a competitive industry. For a monopolizedindustry, however, they are not ineffective, because a monopoly cansell at different prices in different markets. Where there are manyfirms, they will each divert supplies into the high-price market,because each reckons its own effect on the price to be negligible. Amonopoly, on the other hand, can deliberately hold up the price onthe home market. Prices are no longer determined by impersonalmarket forces, but are, within limits, under the deliberate control ofmonopolies. To keep up the price in the home market, the monopolymust restrict the amount sold, since consumers buy less when theprice is raised. The surplus can be sold on the world market atwhatever price it will fetch, provided the price is enough to covercosts; if costs fall with increasing output, what is relevant is that theprice should be enough to cover the extra cost of producing theextra output, which will be lower than the average cost ofproducing the whole output. (See any economics textbook onaverage and marginal cost, and on discriminating monopoly.)

It may, therefore, pay a monopoly to sell in the world market ata price below the average cost of production, not just to get rid of atemporary surplus, but as a regular practice. An example may makethis clear. Suppose that the cost of producing 100 units is $100, andof producing 200 units, $150. The average cost of 100 units is thus£1 per unit, and of 200 units is $0.75 per unit. Now consider thepattern of sales set out below

Home market sales: 100 units; price: $1.50; revenue: $150. Export market sales: 100 units; price: $0.60; revenue: $60. Total sales: 200 units; total revenue: $210.

Selling on the home market alone would bring a profit of $50(revenue of $150, cost $100). The export of 100 units has broughtin extra revenue of $60 and increased costs by $50, increasing profitto $60 ($210 − $150), despite the fact that the 100 exported unitshave been sold at below the average cost of producing all 200 units($0.60 compared with average cost of $0.75). In the same example,consider an enterprise without a protected home market which hasto sell all of its output at the world market price. If it too had anoutput of 200 units, then it would be operating at a loss: receipts of

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$120 and costs of $150; loss of $30. It is true that a sufficiently largeenterprise might be able to overcome this disadvantage (say: output600, cost $300), but it is clear that enterprises with monopolycontrol over a protected home market are at an advantage in thestruggle for survival in the world market.

It may be asked: if all countries were to protect their markets,where could this ‘world market’ or ‘external market’ be found?Hilferding did not give a clear answer. He seems to have assumed anincomplete development of protection, leaving large sections of theworld unprotected. It could also be pointed out that if monopoliestake full advantage of the tariff to raise their price, foreign goods canstill penetrate the protected home market. To continue the examplegiven above, if the world market price is $0.60 and the tariff, perunit, $0.90, then a domestic monopolist can sell at $1.50, but aforeign supplier could also sell at $1.50, pay the $0.90 in customsduty and receive a net revenue of $0.60, the same as in a unprotectedpart of the world market.

Note that Hilferding argued that monopolies exploit allconsumers within their protected territory, whether they live in themetropolitan areas or the colonies; it is not a question of animperialist country exploiting its subject territories, but ofmonopolies exploiting everyone else. Protection, by supportingmonopoly, serves the interests of a ruling class, and specifically of asection of that class, finance capital.

Hilferding therefore argued that the function of protectionismhad been completely transformed. ‘From being a means of defenceagainst the conquest of the domestic market by foreign industries ithas become a means for the conquest of foreign markets bydomestic industry’ (FC: 310).

As we have seen, the protective tariff brings the capitalistmonopoly an extra profit on its sales in the domestic market.The larger the economic territory, the greater the volume ofdomestic sales . . . and the larger therefore the cartel’s profits.The greater this profit, the higher the export subsidies can be,and the stronger therefore is the cartel’s competitive position onthe world market. (FC: 313)


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Protectionism divides the world into distinct national economicterritories, and the rise of monopoly impels protectionism to newheights. This is the basis of a theory of imperialism (thoughHilferding adduced further arguments, which I will discuss in thenext section). To quote him:

The policy of finance capital has three objectives: (1) to establishthe largest possible economic territory; (2) to close this territoryto foreign competition by a wall of protective tariffs, andconsequently (3) to reserve it as an area of exploitation for thenational monopolistic combines. (FC: 326)

5.3 CAPITAL EXPORT

The international movement of capital on a really large scale startedaround the 1870s, and reached a peak in the years immediatelybefore the First World War. It was never again to reach such levels,relative to the scale of total investment, but Marxists of the timecould not, of course, see into the future. The export of capital wastherefore an important topic in their writings. It had become almosta truism to say that ‘the export of capital tends to replace the exportof commodities’; it had to be incorporated into the analysis.

It is clear that Hilferding thought of the movement of capitalfrom one geographical area or industrial sector to another as anentirely normal part of capitalism. Capital seeks out the cheapestlocations for production, the most favourable natural conditionsand the richest natural resources. There are, however, distinctionswhich Hilferding did not draw but which are important to hisarguments. Starting with his concept of a ‘national economicterritory’ (which may be larger than the ‘nation’ narrowly defined,because it includes colonies, spheres of influence, and so on), we candistinguish three forms of capital export. First, there is themovement of capital to underdeveloped parts of the economicterritory. There is, according to Hilferding, a motive to expandterritory in order to gain these fields for investment. Second, thereis investment in ‘unclaimed’, or independent but backward, parts ofthe world. This investment may serve as a means of incorporatingthe area concerned into the national territory (preferential

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treatment may be a condition of granting a loan), or it may create amotive for its subsequent incorporation in order to safeguard theinvestment. Third, there is investment in the territory of anothernation. This would tend to decrease the importance of the divisionof the world market into different territories, rather than creating amotive for territorial expansion.

What are the reasons for capital export? Hilferding treated theconstant movement of capital in search of maximum returns asnormal, but there are some additional arguments that applyspecifically to capital export. One is the desire to overcome othercountries’ protective tariffs by producing within their tariff walls,taking advantage of the tariffs that are designed to shut you out. Inthe case where the tariffs are imposed by a weak state, this falls intomy second category, and may be a prelude to the incorporation ofthe capital importing country into the sphere of influence of thecapital exporter. Where the capital importing country is a majorpower, however, it falls into my third category, and tends toundermine the effect of protective tariffs in reserving the ‘nationalterritory’ for the national capital.

Hilferding did mention the ‘falling rate of profit’ (FC: 315), butimmediately, and rightly, qualified the argument by pointing outthat the price of internationally traded goods is not determined byconditions in the most advanced countries alone; both advancedand underdeveloped countries have to sell their goods on the worldmarket at a single price. If advanced countries have a higher organiccomposition of capital, it is because capital-intensive methods aremore profitable at the existing prices. Underdeveloped areasproducing the same goods by less advanced methods must havehigher costs and a lower profit rate (unless they have otheradvantages such as low wages, which are in themselves sufficientexplanation for the movement of capital).

Hilferding did, however, regard differences in interest (andprofit) rates as an important motor of capital exports. The highlydeveloped financial systems of the advanced countries lead to lowerinterest rates and greater availability of (money) capital, hence theyare the main centres for raising loans and floating new enterprises.Underdeveloped countries also attract investment because wagesare low, the low quality of labour being compensated by longworking hours, and also because rent on land is low. These reasons


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need no discussion, since they are so obvious. He also discussed thecreation of markets for capital goods by the export of capital, buthe treated these mainly as effects of capital export rather than causesof it. The export of capital stimulates the development of the capitalgoods industries, creates supplies of cheap goods, and raises the rateof profit. It therefore generates a period of accelerated growth forcapitalism.

What is the connection between the rise of finance capital and thegrowth of capital export? This was clearly a vital question forHilferding, since he hoped to show that the main developments ofcapitalism in his time were linked to the rise of finance capital. Hisanswer ran in terms of institutional changes, such as the adoptionof the joint stock form of organization and the linking of banks andindustrial firms. Opportunities for capital export had been there allalong, but had been left unclaimed for lack of adequateorganizational forms to take advantage of them. The joint stockform made it possible for subsidiaries to be established abroadwithout the emigration of the capitalist. The link between the banksand industrial companies made for easier access to funds, oftenthrough a foreign subsidiary of the bank. A large company has agreat advantage in setting up a new installation from scratch in anew location, because of its size alone.

The development of finance capital also changed the form ofcapital export. Countries in which finance capital had notdeveloped far (Britain, France) exported capital by portfolioinvestment, the granting of loans and the purchase of shares inforeign enterprises. Where finance capital was more developed(Germany, USA), capital export tended to take the form of directinvestment in productive enterprises controlled from the capitalexporting country, ensuring that the capital exporter had far tightercontrol. The greater efficiency of finance capital in investmentabroad is a competitive advantage which hastens thetransformation of capital into finance capital.

I have already touched on some of the connections between theexport of capital and the creation and expansion of a ‘nationaleconomic territory’. Territorial expansion opens up newopportunities for investment, while investors may call on the‘home’ state to create a political and juridical environment suitablefor their activities. Trade can go on between various different social

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organizations, but capital investment requires the creation ofcapitalist relations of production. Where these are not already wellestablished, colonial control may be a way of creating them. All ofthis is in line with Marx, Luxemburg and Hobson.

The emphasis in Hilferding’s book is on the most advancedcountries, the centres of finance capital, but he did have somethingto say about the impact of these developments on less developedareas. The establishment of capitalist relations of production in newareas is carried though, where necessary, by force. Hilferding’scomments could have been taken direct from Rosa Luxemburg (orvice versa); they do not differ on the methods of capitalistexpansion, and there is, as we have seen, a fair measure ofagreement on the reasons.

Violent methods are of the essence of colonial policy, withoutwhich it would lose its capitalist rationale. They are just as muchan integral part of it as the existence of a propertyless proletariatis a conditio sine qua non of capitalism in general. The idea ofpursuing a colonial policy without having to resort to its violentmethods is an illusion to be taken no more seriously than that ofabolishing the proletariat while maintaining capitalism inexistence. (FC: 319)

The export of capital is the primary driving force behind thisviolent breakup of pre-capitalist societies.

The export of capital, especially since it has assumed the formof industrial and finance capital, has enormously acceleratedthe overthrow of all the old social relations, and theinvolvement of all the world in capitalism. Capitalistdevelopment did not take place independently in eachindividual country, but instead capitalist relations ofproduction and exploitation were imported along with capitalfrom abroad, and indeed imported at the level already attainedin the most advanced country. (FC: 322)

The import of capital could have favourable effects on thedevelopment of capitalism in less developed areas, especially in the


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early stages, when capital was imported to build railways and buildup industries serving the local market. Even in this case, there aredisadvantages of capital import in the drain of profit abroad,though a large enough territory may be able to ‘naturalize’ foreigncapital (Hilferding’s example is the absorption of French andBelgian capital in Germany). However, the export of capital isincreasingly directed to the production of raw materials for export.This leads to economic and political dependence (FC: 330).Hilferding thus anticipated themes developed by later writers, buthe soon turned away from these issues to discuss the way in whichsmall countries became the battlefield for the struggles of the majorpowers, and hence gets back to the subject of the advancedcountries, his main interest.

5.4 IMPERIALISM

The rise of finance capital brought about a fundamentaltransformation in class structure, in the role of the state, and in theideological sphere. In the epoch of competitive capitalism, capitalwas divided into three distinct fractions: industrial, commercial andfinancial. The dominant ideology of industrial capital wasliberalism, both economic liberalism or laissez-faire, and the moreradical political liberalism in which the claim to independence ofindividual capitalists and commodity producers was translated intoa doctrine of the rights of the individual citizen. This ideology neverbecame dominant in a pure form. Hilferding drew an interestingcontrast between England, on the one hand, and continentalEurope on the other. In England, the victory of capitalism was wonat a very early stage, before liberalism had achieved its classicalpolitical form, and as a result English ideology was dominated bythe narrowly economic doctrines of laissez-faire. Politicalliberalism never took root in its stronger forms. Free trade, on theother hand, perfectly expressed the interests of industrial capital inEngland when England was the dominant industrial nation and hadnothing to fear from international competition. The dominance ofthe ideology of competition proved difficult to shake off when itbecame outdated, with the rise of finance capital in other nations.

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In continental Europe, industrial capital needed protection andstate assistance from the beginning, being weaker initially as a resultof a later start. Laissez-faire ideology never took so firm a hold, andthe classical liberal hostility to the state was very much weakened.The protagonists of free trade, for a long time, were the agriculturalinterests, since northern Europe was a grain exporting region. Thestruggles in Germany, Italy and Austria to create modern nationstates out of pre-capitalist political structures also generatedsupport for the state. There were, therefore, considerable elementsof statist ideology for finance capital to build on. Pre-capitalistideologies were never wholly eliminated, and could be incorporatedinto the ideology of finance capital.

The rise of finance capital unified industrial and financial capital,while commercial capital was reduced to a totally subordinatestatus. The primary justification for the separate role of commercialcapital had been the need to collect together the output of manysmall firms, to gain the economies of trading on a large scale. Onceproduction was concentrated into large units, this justificationvanished, especially in exchanges between one sector of productionand another, where large firms prefer to deal directly with eachother. Where commercial capital survived at all, it was reduced tothe status of an agent for finance capital.

The integration of capital by finance capital was cemented,according to Hilferding, by a ‘personal union’. By this he meant thatthe high level personnel of different sectors becameinterchangeable. Representatives of banks sat on the boards ofindustrial firms, and industrialists sat on the boards of banks.Family and social ties also linked the ruling class together. Smallercapitalists in fact suffered from the rise of monopoly, but Hilferdingdid not expect them to react against finance capital, because of theirdependence on the banks (for loans) and on the monopolies (fororders and supplies). The spread of share ownership was veryimportant in integrating the non-producing classes of landlords,professionals, state employees and rentiers. Rural interests werealso incorporated as finance capital penetrated the countryside bysetting up plants to process agricultural products and the like. The‘possessing classes’ were united politically by the fact that they faceda common enemy, the working class.


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The rise of finance capital therefore created a ruling classrelatively unified in political affairs under the leadership of the‘magnates of finance capital’, corresponding to a relatively unifiedand hierarchical economic structure (note the similarity toHobson). This change in the structure of the ruling class naturallyinvolved a change in its relation to the state, a relation whichbecame much more close and direct. Hilferding did not go as far ashis successors, who tended to see the state as the more or less directproperty of a handful of monopolies, but even so it is possible thathe went too far. He was describing tendencies which had not, at thatdate, fully worked themselves out, and it is doubtful whether thevarious strata and fractions of the capitalist class and its allies wereever as thoroughly integrated as he suggested.

He also described the growth of new strata of white-collarworkers called into existence by the increased size of firms and theconsequent mushrooming of administration and paperwork. Heforesaw a continuing increase in these groups and fully realizedtheir importance. Although he regarded them as potential allies forthe working class, he recognized that they were, at the time, amongthe most deeply reactionary sections of the population, and thattheir position would at best be ambivalent. The political position offinance capital was thus very strong.

Hilferding stressed that finance capital needed the power of thestate. In the first instance, tariff protection was needed to gain thebenefits of monopoly. Given protection, we have seen why financecapital should press for territorial expansion, and thus for apowerful state.

The demand for an expansionist policy revolutionizes the wholeworld view of the bourgeoisie, which ceases to be peace-lovingand humanitarian. The old free traders believed in free trade notonly as the best economic policy but also as the beginning of anera of peace. Finance capital abandoned this belief long ago. Ithas no faith in the harmony of capitalist interests, and knowswell that competition is becoming increasingly a political powerstruggle. The ideal of peace has lost its lustre, and in place of theidea of humanity there emerges a glorification of the greatnessand power of the state. . . . The ideal now is to secure for one’sown nation the domination of the world. (FC: 335)

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Hilferding did not generally use the word ‘imperialism’, tendinginstead to use phrases like ‘modern protectionist policy’, ‘moderncolonial policy’ and ‘the external policy of finance capital’. Whenhe did use it, it was as a generalized descriptive term for militaristand expansionist tendencies in capitalism, so there are phrases like:‘modern protectionist policy, which is inextricably bound up withimperialism’, and ‘capital can pursue no other policy than that ofimperialism’ (FC: 365, 366). All these references occur in the lastchapter of the book. Imperialism was a word which was around atthe time, and Hilferding used it to add punch to his peroration.

The use of words is not of essential importance. What isimportant is the absence of any clear concept of imperialism, anabsence indicated by the variety of phrases Hilferding used toindicate different aspects of the phenomenon. The major elementsof the idea were there, but they were never pulled together: the creditfor that must go to Bukharin. The reason why Hilferding did notconstruct a concept of imperialism is fairly clear; his interest was inthe internal developments in the major capitalist centres, in the riseof finance capital. That is the title of the book, it is his concept, andnobody can take it away from him.

Pulling together Hilferding’s scattered remarks on thephenomena that came to be called ‘imperialism’, will showimmediately how much Bukharin and Lenin took from him.Finance capital has a direct interest in maximizing the extent of theprotected national economic territory. In addition there is thesearch for exclusive fields for capital export. Both point inexorablyto a policy of expansion, and thus to conflicts between capitalistpowers. Hilferding was rather cautious in discussing theinevitability of conflict. On the one hand, the rise of German financecapital, controlling a relatively narrow territory, and the relativedecline of Britain, with a huge empire, in particular, together withother disproportions between economic strength and size ofterritory, created a set of circumstances which Hilferding summedup: This is a situation which is bound to intensify greatly the conflictbetween Germany and England and their respective satellites, andto lead towards a solution by force’ (FC: 331). On the other hand,he argued, the low level of development of finance capital in Britainand France led to the export of capital in the form of loans, often toAmerican and German enterprises, thus creating a ‘certain


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solidarity’ of the international interests of capital. He also cited thefear of socialism as a factor deterring capitalist states from going towar. He preferred to remain agnostic as to which of these tendencieswould predominate, commenting that it all depended on thecircumstances of particular cases, just like the choice for particularfirms between entering a cartel or trying to achieve dominance byundercutting its rivals. In the conflict between Kautsky and Leninover these issues (discussed in the next chapter), Hilferding’sposition was, as in so many things, somewhere in between. It was,of course, relatively easy for Lenin to announce the inevitability ofwar when the war had actually broken out.

5.5 SUMMARY

Competition tends to create monopolies, and monopolies canexercise control over the small firms that they deal with. There istherefore a tendency towards the formation of huge blocs of capitalorganized in a hierarchical way. Financial, industrial, andcommercial capital are linked together, as finance capital, in thesefinancial groups, which Hilferding saw as dominated by banks.Since monopolies cannot yet control the world market, they needthe protection of tariffs, and then seek to extend their protectedmarkets as far as possible, hence the support of finance capital forexpansionist policies. By setting out these arguments, Hilferdingbecame the real founder of the classical Marxist theory ofimperialism.

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6

Bukharin and Lenin

When the First World War broke out, in August 1914, almost all thesocialist parties of the Second International abandoned theircommitment to internationalism and supported their nationalgovernments. The Bolshevik wing of the Russian Social DemocraticParty was almost the only organized party which held out againstthis disintegration. In this desperate situation, exiled andcondemned to inactivity, two of the leaders of the Bolsheviks wroteworks on imperialism, setting out their analyses of the connectionsbetween war and the development of capitalism. These two works,both based on Hilferding’s writings, are the foundations of theclassical Marxist analysis of imperialism.

Bukharin’s Imperialism and World Economy (Bukharin 1972a,cited below as IWE) was written in 1915, though the manuscriptwas lost for a time, and it was only published after the success of theRussian revolution. Lenin wrote a laudatory preface to it, whichwas not rediscovered and published until 1927. In the meantime,Lenin himself had written on the same topic. His Imperialism, theHighest Stage of Capitalism (Lenin 1950, cited below asImperialism) was written in early 1916, in other words, shortlyafter the preface to Bukharin’s book, dated December 1915. Lenin’spamphlet had a slightly more successful passage through thehazards of underground activity and was published a few monthsearlier than Bukharin’s. The dating of Lenin’s preface, however,establishes as clearly as one can in such circumstances thatBukharin’s work came before Lenin’s. I shall therefore start withBukharin, though it should be noted that Bukharin acknowledgeda ‘debt of deep gratitude’ to Lenin, though it is not clear for what;


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the context suggests that it may simply be for providing theintroduction. I make these points not to disparage Lenin but toreclaim for Bukharin the credit that he deserves. Bukharin’ssubsequent career was erratic, and he ended by being disgraced andexecuted in the climactic Stalinist purge. (He has now beenrehabilitated in the USSR.) This fate must largely account for thesubsequent neglect of his work.

Bukharin and Lenin used the term ‘imperialism’ in ratherdifferent ways. Bukharin defined it as a policy:

We speak of imperialism as of a policy of finance capital.However, one may also speak of imperialism as an ideology. Ina similar way liberalism is on the one hand a policy of industrialcapitalism (free trade, etc.) and on the other it denotes a wholeideology (personal liberty, etc.). (IWE: 110n)

However, he insisted that a policy of conquest only counts asimperialism if it is the policy of finance capital, and he also arguedthat it is inevitably followed by finance capital. Furthermore,looked at on a world scale, what matters is not the fact that any oneparticular state follows an imperialist policy but the rivalry betweenthem; this comes out clearly in his chapter heading: ‘Imperialism asthe reproduction of capitalist competition on a larger scale’. Hisargument moves, therefore, from imperialism as a policy and as anideology, to imperialism as a characteristic of the world economy ata particular stage of development.

Lenin took this further by treating imperialism as a stage in thedevelopment of capitalism. Policies which other writers had calledimperialist are part of the characteristics of this stage, but so areother phenomena including the rise of monopoly. All are subsumedunder the single heading, imperialism. (For further discussion seeArrighi 1978.) This definition has caused some confusion, sincemany subsequent Marxists have wanted to talk, more narrowly, ofimperialism as the domination of one country over another (yet athird definition), and this has become the most common use of theterm. The words we use are, of course, not important in themselves.They only become important when they are a source of confusion.

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I shall generally use the term ‘imperial ism’ in the sense intended bythe writer under discussion at the time.

6.1 BUKHARIN

It is difficult to convey either the quality or the importance ofBukharin’s writings on imperialism, since his originality was notessentially in producing new ideas, but in putting existing ideastogether to make a coherent and novel whole. Much of his theorywas taken from Hilferding; my summary of Hilferding’s views in thelast chapter concentrates on those elements in his slightly chaoticwriting that Bukharin subsequently welded into a coherent picture.The essential difference between them is that where Hilferding sawone process at work, the concentration and centralization ofcapital, Bukharin saw two: the ‘internationalization’ and‘nationalization’ of capital, the growing interdependence of theworld economy, and its division into national blocs. Thecontradiction between these two opposed tendencies drives thesystem into war and breakdown. I shall quote extensively fromBukharin, because his theoretical statements are so concise that theyfrequently defy any shorter summary. The major part of what is, inany case, a short book, is taken up with factual evidence adduced tosupport each step in his argument.

‘Just as every individual enterprise is part of the “national”economy, so every one of these “national economies” is included inthe system of world economy’ (IWE: 17). International tradeestablishes social relations of production on a world scale. Theinternational division of labour is based on two factors of changingimportance: first, on the different natural conditions in differentareas of the world and, second, on the different levels ofdevelopment attained in different areas.

Important as the natural differences in the conditions ofproduction may be, they recede more and more into thebackground compared with differences that are the result of theuneven development of productive forces in the variouscountries. . . . The cleavage between ‘town and country’ as well


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as the ‘development of this cleavage’, formerly confined to onecountry alone, are now being reproduced on a tremendouslyenlarged basis. Viewed from this standpoint, entire countriesappear today as ‘towns’, namely, the industrial countries,whereas entire agrarian territories appear to be ‘country’.(IWE: 20-1; the phrases in quotation marks are from Marx,Capital I: 352)

The international division of labour was growing, because ofimprovements in transport, continued economic development, andunevenness of development, factors that are not accidental and willnot go away. The internationalization of economic activity is afundamental fact.

The international division of labour, the difference in naturaland social conditions, are an economic prius which cannot bedestroyed, even by the World War. This being so, there existdefinite value relations, and, as their consequence, conditionsfor the realisation of a maximum of profit in internationaltransactions. Not economic self-sufficiency, but anintensification of international relations . . . such is the road offuture evolution. (IWE: 148)

A world market for capital develops alongside the markets forgoods. Capital export appears in Bukharin’s argument as anintegral part of the growth of the international division of labourand the internationalization of capital. He did suggest in passingthat the movement of capital will be from the more developed to theless developed countries, because there is ‘overproduction’ ofcapital in the former and the organic composition of capital is lowerin the latter (IWE: 45–6). This argument is doubly dubious; thetheory of the falling rate of profit is now widely rejected, and itsapplication to intercountry comparisons in a partly integratedworld system would need to be worked out properly.

The process of concentration and centralization of capital, thetendency towards monopoly, was also going on, at a tremendouspace. There is no need to go into details: Bukharin followedHilferding closely in the main lines of his argument. Bukharin took

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a step beyond Hilferding in asking why the ‘organization process’should proceed on a national basis. This question is of greatrelevance today, when some writers are proclaiming the irrelevanceof the nation state in view of the internationalization of capital.Bukharin answered:

The organisation process . . . tends to overstep the ‘national’boundaries. But it finds very substantial obstacles on this road.First, it is much easier to overcome competition on a ‘national’scale than on a world scale . . .; second, the existing differencesof economic structure and consequently of production costsmake agreements disadvantageous for the advanced ‘national’groups; third, the ties of unity with the state and its boundariesare in themselves an ever growing monopoly which guaranteesadditional profits. Among the factors of the latter category [is]the tariff policy. (IWE: 74)

The role of tariffs in protecting national monopolies has alreadybeen discussed (chapter 5). In Bukharin’s argument they had a newsignificance. Instead of being simply reasons for protection, theybecame reasons both for protection and for the formation of cartelson a national basis. Instead of the link-up between finance capitaland the state being a conclusion (as in Hilferding), it becomes a stepin the argument.

The essential point is that monopolies, in the first instance, takethe form of cartels (agreements to carve up the market). These arerather fragile, because there is a constant temptation for any singlefirm to break with the cartel and try to increase its share of themarket. Cartels can only hold together if their members remainsatisfied with the way the market is divided and do not believe thatthey could improve their profits by breaking with the cartel andtrying to win the ensuing competitive struggle. A cartel isparticularly liable to break up if the competitive strength of itsmembers is very unequal, so the strongest come to think that theyhave more to gain by breaking up the cartel than by staying in it, andif the relative strengths of the members change, so that the divisionof the market agreed at the outset becomes inappropriate. Bukharinargued that both factors operate particularly strongly on an


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international level, because uneven development is particularlymarked between different nations within the world economy.

Since cartelization and the formation of monopolies promisedboth super-profits and a great competitive advantage in the worldmarket, there was a tremendous incentive for capitalist enterprisesto link together on a national basis. Bukharin thus had twoprocesses: the nationalization and the internationalization ofcapital. Together with the internationalisation of economy and theinternationalisation of capital there is going on a process of“national” intertwining of capital, a process of “nationalising”capital, fraught with the greatest consequences’ (IWE: 80). Theresult is the creation of national blocs of capital set in the context ofa world economy:

various spheres of the concentration and organisation processstimulate each other, creating a very strong tendency towardstransforming the entire national economy into one giganticcombined enterprise under the tutelage of the financial kingsand the capitalist state, an enterprise which monopolises thenational market. . . . It follows that world capitalism, the worldsystem of production, assumes in our times the followingaspect: a few consolidated, organised economic bodies (‘thegreat civilised powers’) on the one hand, and a periphery ofunderdeveloped countries with a semi-agrarian or agrariansystem on the other. (IWE: 73-4)

This is a striking description, and one that contains a great dealof truth, but it must still be qualified. Bukharin identified a tendencytowards the formation of a single ‘gigantic combined enterprise’ ona national basis. However, like many Marxists, he often treated atendency as if it were an established fact and ignored the counter-tendencies. It is not true that competition was, then or later,completely suppressed within national boundaries. I am notconcerned here with the remaining fringe of small businesses,though they should not be ignored, but with competition betweendifferent big businesses and groups of finance capital. The tendencyhas been for big corporations to spread out from their nationalbases and compete all over the world, rather than uniting to face

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foreign competition. So, for example, one of the major sources ofcompetition in the world motor industry is competition betweenFord and General Motors.

Further, Bukharin’s treatment of the state was over-simple. He,with many of his contemporaries, seems to have regarded the‘relative autonomy’ of the state (a modern phrase) as the product ofthe division of the capitalist class into distinct fractions and intomany competing capitals. With the unification of the capitalist classby finance capital, the separation broke down, and a direct identitybetween the magnates of capital and the state took its place.

This line of argument has influenced the orthodox communistparties ever since and is still to be found today. It has, however, beenwidely criticized, first, because the unification of the capitalist classwas, as I have pointed out above, never complete; second, becausesupport from the various strata of professionals, state employees,etc., has always been vital, and has generally been mobilized by theincorporation of these groups into political organizations, andfinally because of the need to contain and absorb working-classpressure rather than simply repressing it. For all of these reasons,the state has much more autonomy than Bukharin, or the otherclassical Marxists, admitted.

In a sense Bukharin’s vision of the world represents an abolitionof the state as a body distinct from ‘civil society’. It has often beenargued that the state is needed to contain the centrifugal pressuresof the anarchy of economic life. In Bukharin’s vision, the anarchy ofcapitalist competition is entirely suppressed at the national level,only to re-emerge in an even more disruptive form at the world level.On a world scale, no state exists to suppress the threats to stabilitythat competitive anarchy generates.

To complete the description of Bukharin’s analysis ofimperialism, one more point must be made. The tendency towardsmonopoly, in his framework, does not represent a steady decline incompetition. On the contrary, it implies an intensification ofcompetition, as the few remaining firms slug it out for the prize ofcomplete monopoly. Total monopoly, on a world scale, mightindeed end competition, but Bukharin did not expect this stage tobe reached: capitalism would perish first. The concentration andcentralization of capital therefore does not put an end to


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competition, but changes its form. Previously competition tookplace primarily inside national boundaries, and competition in theworld market was weak. Now that competition is largelyeliminated within each state, it is whole countries that are absorbedby others, instead of small businesses being taken over by largeones. ‘Imperialist annexation is only a case of the general capitalisttendency towards centralisation of capital, a case of itscentralisation at that maximum scale which corresponds to thecompetition of state capitalist trusts’ (IWE: 119-20).

6.2 LENIN

Lenin’s pamphlet, Imperialism, the Highest Stage of Capitalism, isthe most famous Marxist work on imperialism. It was, for me, asurprising discovery that it makes little or no contribution to thedevelopment of a theory of imperialism. Its theoretical content isslight and derives from Hilferding, Bukharin and Hobson. Thisshould not, perhaps, be a surprise. The work is a pamphlet (Lenindescribes it as such in his preface), a ‘popular outline’ of the sort thathas an honourable and important role in Marxist literature: afactual survey of the current situation together with a summary ofthe results of theoretical analysis (though not the detailedtheoretical argument), designed to provide a basis for politicaldecisions. To argue that the work contains no major theoreticalinnovations is not, therefore, a criticism of Lenin, but of theorthodox Marxist tradition which turned it into a sacred text. Totreat any work as sacred is a thoroughly unscientific attitude; totreat a minor work (with the weaknesses which this one has) assacred is also a serious lapse of judgement. Since Imperialism hasbeen treated as a theoretical work, I shall have to criticise it as such.Lenin’s writings on the national question are also relevant, ifsomewhat light-weight (for example, Lenin 1964: 143-56 and 320-60). Bagchi (1986) argues that they are important, as indeed theyare for understanding the development of Lenin’s political strategy,but in my view they do not add very much to the theory ofimperialism.

Lenin’s major purpose in writing Imperialism was to counter thepropaganda of Kautsky and other ‘ex-Marxists’ (he included

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Hilferding in this category) who were, in his view, leading theshattered remnants of the Second International in entirely thewrong direction. From this point of view, the most importantsections of the work are those directed against Kautsky’s theory of‘ultra-imperialism’, and those describing the rise of a ‘labouraristocracy’, which Lenin saw as the material base for the supportKautsky’s revisionism had gained in the major imperialist countries.

Lenin’s basic method was to set out a series of trends ortendencies in the development of capitalism in the period in whichhe was writing, and to document each with factual evidence. Onesuch list reads:

(1) the concentration of production and capital has developedto such a high stage that it has created monopolies which play adecisive role in economic life; (2) the merging of bank capitalwith industrial capital, and the creation, on the basis of this‘finance capital’ of a financial oligarchy; (3) the export of capitalas distinguished from the export of commodities acquiresexceptional importance; (4) the formation of internationalmonopolist capitalist combines which share the world amongthemselves; and (5) the territorial division of the whole worldamong the biggest capitalist powers is completed. (Imperialism:525)

The problem with this method is that each tendency is describedseparately, and their interconnections are only examined in passingor in the polemical sections directed against Kautsky. In a theory ofimperialism it is precisely the interconnections that are crucial; is itjust a matter of chance that these developments occurred at the sametime, or are there essential connections that make it inevitable thatthey should occur together? Lenin did say that the ‘briefest possibledefinition of imperialism’ is ‘the monopoly stage of capitalism’,implying that the rest flows from the growth of monopoly, but hedid not specify why.

The first two tendencies in the list, the rise of monopoly and offinance capital, pose few new problems since Lenin followedHilferding very closely. He quoted a variety of sources to establishthat production had become concentrated into fewer and fewerunits, as Marx had predicted:


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Marx . . . by a theoretical and historical analysis of capitalismproved that free competition gives rise to the concentration ofproduction which, in turn, at a certain stage of development,leads to monopoly. . . . For Europe, the time when the newcapitalism definitely supersedes the old can be established withfair precision: it was the beginning of the twentieth century.(Imperialism: 448)

He also described the development of monopoly in banking, and thedominance of bank capital over industrial capital. Even morenoticeably than Hilferding, he stressed the dominance of the banks,and hence of rentiers, of idle owners of money capital who play noactive part in production at all. This foreshadows his discussion of‘parasitism’.

The section on the export of capital raises more problems. Whyshould the export of capital become especially important at thisstage of capitalist development, and what is its significance? Leninargued:

The possibility of exporting capital is created by the fact that anumber of backward countries have already been drawn intoworld capitalist intercourse; main railways have either been orare being built there, the elementary conditions for industrialdevelopment have been created etc. The necessity of exportingcapital arises from the fact that in a few countries capitalism hasbecome ‘over-ripe’ and (owing to the backward stage ofagriculture and the impoverished state of the masses) capitalcannot find a field for ‘profitable’ investment. (Imperialism:495)

What are we to make of this? The first half of the quotation givesno difficulty. It is the second half of the quotation, the ‘over-ripeness’ of capitalism, that is generally quoted and that is verydifficult to interpret. Some commentators take it as a reference tothe ‘law’ of the falling rate of profit. This interpretation cannot,however, be accepted, since ‘the backward stage of agriculture andthe impoverished state of the masses’ are not factors that lead to afall in the rate of profit at all. The backward stage of agricultureshould reduce the average organic composition of capital and thusraise the rate of profit (unless, by a strict application of Marx’s very

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dubious theory of absolute rent, we argue that the benefits of a loworganic composition of capital are captured by landowners as rent).Backward agriculture might reduce the rate of profit by raising thevalue of subsistence goods and thus the value of labour-power, butthis should be offset by the ‘impoverished state of the masses’.

If the reference to the poverty of the masses and thebackwardness of agriculture is to mean anything it must surelyrepresent an under-consumptionist analysis, as must: ‘if capitalismcould . . . raise the standard of living of the masses . . . there could beno talk of a superabundance of capital. . . . But if capitalism did thesethings it would not be capitalism’ (Imperialism: 495).Accumulation is held up by a lack of markets resulting from the lowdemand for consumer goods, which in turn is a result of the povertyof the masses. This was, of course Hobson’s argument, which Leninseems to have taken over rather uncritically. (He did not take overHobson’s solution, a redistribution of income within capitalism, asthe extract cited above shows.) On the other hand, Lenin’s majoreconomic work, The Development of Capitalism in Russia, wasdirected specifically against the Narodnik argument that capitalismin Russia was doomed to failure because of the lack of a ‘homemarket’ resulting from the poverty of the masses. The two workswere separated by twenty years, and it is possible that Lenin hadchanged his mind in the interim, but one would require clearerevidence of a change of mind than these cryptic phrases provide.

There are, of course, other reasons for the export of capital tobackward countries beside the ‘overripeness’ of capitalism, andLenin mentioned them briefly: ‘In these backward countries profitsare usually high, for capital is scarce, the price of land is relativelylow, wages are low, raw materials are cheap’ (Imperialism: 496).The strongest motive cited by Lenin was the desire to gain controlof sources of raw materials, or at least to prevent others fromgaining monopoly control of them. These reasons are perfectlyadequate to explain the export of capital, but they do not show thatcapitalism needs capital export to survive, which might be impliedby phrases like ‘superabundance’ of capital. My conclusion is thatLenin’s few remarks about the causes of capital export do notamount to an explanation or to a complete theory and cannotusefully be cited in support of any arguments about the importanceof capital export to the more advanced capitalist countries (cf.Michalet 1976).


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What of the effects of capital export? In the backward areas theeffect was to accelerate development. Here again, Lenin was in thedirect line of descent from Marx, and especially from theCommunist Manifesto. He did not stress the obstacles which thisdevelopment meets, nor did he stress its one-sided and limitedeffects, in the way that Hilferding, and more recent writers (forexample, Baran) have done.

The export of capital affects and greatly accelerates thedevelopment of capitalism in those countries to which it isexported. While, therefore, the export of capital may tend to acertain extent to arrest development in the capital exportingcountries, it can do so only by expanding and deepening thefurther development of capitalism throughout the world.(Imperialism: 498)

The notion that capital export slows development in the capitalexporting countries was developed at greater length in thediscussion of ‘parasitism and decay’. Here Lenin diverged from theMarxist tradition, and recognized the fact by saying that ‘theMarxist Hilferding takes a step backwards compared with the non-Marxist Hobson’ (Imperialism: 536) in not recognizing a‘parasitism, which is characteristic of imperialism’. This is not tosay that there is anything inherently un-Marxist in Lenin’sargument. Marx argued that a mode of production falls when itbecomes a fetter on the forces of production. Lenin, essentially,judged that capitalism, in the imperialist stage, had become such afetter, a brake on development, at least in the most advancedcountries, although, as the quotation above shows, he regardedimperialism as a force for development in the world as a whole. ‘Onthe whole capitalism is growing far more rapidly than ever before;but this growth is not only becoming more and more uneven ingeneral, its unevenness also manifests itself, in particular, in thedecay of the countries which are richest in capital’ (Imperialism:564).

He followed Hobson rather closely in his account of the effect ofcapital export on the capital exporting countries:

Further, imperialism is an immense accumulation of moneycapital in a few countries. . . . Hence the extraordinary growth

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of a class, or rather of a social stratum of rentiers, i.e. peoplewho live by clipping coupons, who take no part in any enterprisewhatever, whose profession is idleness. The export of capital,one of the most essential economic bases of imperialism, stillmore completely isolates the rentiers from production and setsthe seal of parasitism on the whole country that lives byexploiting the labour of several overseas countries and colonies.(Imperialism: 537)

It is easy to see how capitalists can be called parasitic, but howcan one say that a whole country is parasitic? The onlycircumstances in which it would be reasonable to say this would bewhere a growing proportion of the workers were drawn intounproductive work, as servants, clerks in the offices of thefinanciers and so on, and it seems that this is what Lenin had inmind. He quoted Hobson’s speculations:

The greater part of Western Europe might then assume theappearance and character already exhibited by tracts of countryin the South of England, in the Riviera and in the tourist-riddenor residential parts of Italy and Switzerland, little clusters ofwealthy aristocrats drawing dividends and pensions from theFar East, with a somewhat larger group of professional retainersand tradesmen and a large body of personal servants andworkers in the transport trades and in the final stage ofproduction of the more perishable goods; all the main arterialindustries would have disappeared, the staple foods andmanufactures flowing in as tribute from Asia and Africa,(quoted in Imperialism: 540-1)

This is, indeed, a possible outcome, but it is not what happened(yet). It is precisely the complaint of the underdeveloped countriestoday that they have been excluded from ‘all the main arterialindustries’, and it is a major concern of more recent Marxisttheorists to explain why the major industries remained centred inthe old heartlands of imperialism and took so long to develop inunderdeveloped areas. Capital export went, in practice, mainly intothe development of raw material production for export fromunderdeveloped areas to the manufacturing centres of the advancedcountries, as predicted by Hilferding and Bukharin. I stress the


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point for two reasons. First, because it brings out how large is thegap between Lenin and recent Marxist writers, even those whosincerely regard themselves as his disciples, and, second, because atradition derived from Lenin led Marxists astray for a long time.Since they thought capitalism was in the last throes of decay anddissolution, they were quite unable to explain or to respond to itsunexpected capacity not only to survive, but also to advance.

In theoretical terms, the crucial failing in Lenin’s pamphlet is itsfailure adequately to theorise the place of the nation state in theworld economy. There are sections headed: ‘the division of theworld among capitalist combines’ and ‘the division of the worldamong the great powers’, but no theoretical connection isestablished between them. This is an extreme example of themethodological weakness of Lenin’s pamphlet; he described anumber of trends without fully explaining how they are connected.

In discussing the division of the world among capitalistcombines, Lenin wrote:

As the export of capital increased, and as the foreign andcolonial connections and ‘spheres of influence’ of the bigmonopolist combines expanded in all ways, things ‘naturally’gravitated towards an international agreement among thesecombines, and towards the formation of international cartels.(Imperialism: 501)

This was followed by accounts of the various attempts to formsuch cartels in the electrical industry, the oil industry and so on. Thenext section went straight on to a mainly descriptive account of thedivision of the world between the great powers. The central pointwas that the world had, for practical purposes, been dividedalready, and that any change had to be by redivision, which wouldinevitably mean conflict. This was the essential point Lenin wantedto make against Kautsky and it is, in that context, a strong point.

The question that is left open, however, is: who is it that isdividing the world? The implicit answer is: the national groups offinance capital. This invites the further question: why should blocsof finance capital form on a national basis? Perhaps becauseBukharin had already dealt with this question, perhaps because itwas not relevant to his immediate concerns, Lenin did not try toanswer. He took it for granted, with remarks like: ‘Monopolist

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capitalist combines, cartels, syndicates and trusts divide amongthemselves, first of all, the home market, seize more or less completepossession of the industry of a country’ (Imperialism: 500). Yes, butwhy? Why is a ‘country’ a relevant unit in this context? Lenin gaveno answer.

One criticism of the Bukharin-Lenin analysis deserves mentionhere. It is often argued that their thesis is refuted by the fact that.Britain, the country with the largest colonial empire, was relativelylate in reaching the stage of monopoly capitalism. This line ofcriticism is, at least in part, an example of the semantic confusioncaused by different uses of the term ‘imperialism’. For Lenin, inparticular, imperialism did not specifically refer to the possession ofcolonies. He explicitly recognized that earlier stages of capitalismalso involved colonial expansion, but for different reasons and withdifferent results (Imperialism: 517). It would, however, belegitimate to criticize Lenin (not Bukharin) for taking England asexemplar of the parasitism and decay characteristic (he says) ofimperial centres in the monopoly stage of capitalism. British firmsas a group had a monopoly in the colonies, but individual(industrial) firms did not. It is not, in any case, difficult to accountfor the British empire in the nineteenth century in Marxist terms;Marx’s own writings on British rule in India have already beendescribed.

To summarize, Lenin did not provide a full analysis of the keylinks in his argument. The connections between monopoly, capitalexport and the division of the world remain obscure. He did,however, write a powerful descriptive account of a world dividedbetween great rival empires. The export of capital led to theinternationalization of capitalist production and the extension ofcapitalist relations of production to the furthest corners of theworld, while on the other hand power was concentrated into thehands of great blocs of finance capital and wealth channelled toparasitic rentier classes.

6.3 THE LABOUR ARISTOCRACY

In their writings on imperialism, Lenin and Bukharin weregrappling with the most immediate political problems of their time.With the outbreak of the First World War, the majority of workers


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in the main belligerent countries had supported the war effort oftheir own states. The working classes of Europe were, at that verymoment, killing each other on the battlefields. This horrifying factran completely counter to Marx’s prediction:

The working men have no country. . . . National differences andantagonisms between peoples are daily more and morevanishing owing to the development of the bourgeoisie, tofreedom of commerce, to the world market, to uniformity in themode of production and in the conditions of life correspondingthereto. (Manifesto: 49)

The theory of imperialism explained why there should beantagonism between the ruling classes of different countries, thebeneficiaries of the ‘state capitalist trusts’ or ‘monopoly capitalistcombines’. It remained to explain how the proletariat could beinfected by aggressive nationalism.

Hilferding, writing before the war, saw imperialism as directlyopposed to the interests of the working class, even in the dominantcountries. He argued that the close links between the state andcapital reveal the class character of the state, and lead the proletariatto adopt a stance of opposition to the state and to imperialism.

This over-optimistic estimate could not be sustained whenBukharin and Lenin were writing. They argued that sections of theworking class in the dominant countries did benefit from themonopoly position their capitalist masters had in the world market,and that this explains the support that the imperialist powers wereable to gain from the working-class movement. They also argued(though not in detail) that this gain only accrued to some workers,and that it was merely a relative gain: workers employed by amonopoly in an advanced country did better than those in a weakerposition, but all would do better in a socialist society. The mainargument that Lenin, in particular, relied on, however, was thatimperialism made war inevitable, and that the horrors of war totallywiped out any gains the workers might get from monopolisticprivilege. I shall discuss this argument in the next section.

Bukharin set the context like this:

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The first period of the war has brought about, not a crisis ofcapitalism . . . but a collapse of the ‘Socialist’ International. Thisphenomenon, which many have attempted to explain byproceeding solely from the analysis of the internal relations inevery country, cannot be more or less satisfactorily explainedfrom this angle. For the collapse of the proletarian movement isa result of the unequal situation of the ‘state capitalist trusts’within the boundaries of world economy. (IWE: 161)

His argument was fairly straightforward. There is always atendency in capitalist economies for workers to identify with theiremployers, on the basis that: ‘the better the business of our shop, thebetter for me’. The evolution of trades union struggle has largelywiped out this attachment to a particular enterprise or industry andreplaced it with an awareness of the need to unite against thecapitalist employers. At the same time, however, the formation of‘state capitalist trusts’ has created a basis for solidarity betweenclasses on the national level, the ‘so called working classprotectionism with its policy of safeguarding “national industry”,“national labour”, etc.’ (IWE: 162-3). The competitive struggle hasbeen transformed into a struggle in the world market between statemonopoly trusts. The stronger trusts gain monopoly profit. Theyalso gain extra profit by exploiting native labour in the colonies.These extra profits are the basis for the payment of increased wages.The workers in the dominant countries therefore gain from thesuccess of ‘their’ states in the competitive struggle.

Lenin’s arguments follow the same lines, but are rather broaderand less specific (on Lenin’s version, see Szymanski 1981, ch. 14).He was more insistent that it is only a section of the workers whogain, and he also emphasized the possession of colonies morestrongly, quoting Engels, who had discussed the reactionarypolitical stance of the English working class as early as 1858. Thesignificance of this, though Lenin did not bring it out, is that Engels(and Lenin) described the emergence of a ‘labour aristocracy’ beforethe rise of monopoly (in the sense of control of a market by a singleenterprise or organized group of enterprises). This seemsinconsistent with Lenin’s own comment ‘the economic possibility ofsuch bribery, whatever its form may be, requires high monopolistprofits’ (Imperialism: 540).


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Let us first consider the case of an enterprise which gains highprofits because of its monopoly control of markets. It is clearlypossible for such a firm to pay higher wages to its workers than itcould without a protected monopoly position. There is, however,nothing in its monopoly position that compels it to pay higherwages. If workers are effectively organized in trades unions, theycan try to insist on higher wages, and the sheltered economicposition of the employers may reduce their resistance to thispressure. Alternatively, a firm may decide to pay higher wages inorder to forestall trades unionism, or to gain the loyalty of itsworkers. The gains are very likely, in this case, to go to a privilegedminority, if the management chooses to ‘divide and rule’. Workers’gains may be in terms of better working conditions, shorter hoursor better conditions of work, rather than in higher wages. Againstthis must be set the possibility, emphasized by Hilferding, that alarger firm with greater financial resources may be in a strongerposition to resist wage claims and to suppress trades unions,especially if it can call on state support in these conflicts. Thestronger economic position of large monopoly firms may thus leadto better or worse conditions for workers, depending on the precisebalance of forces. Lenin, in particular, seems to suggest a consciouspolicy of the ruling class in his repeated use of the word ‘bribe’ todescribe the gains of the workers.

There is a difficulty. All the classical Marxists tended to overstatethe extent to which monopoly had triumphed. In fact, it was still theexception, rather than the rule, for a single firm or organized cartelto have complete control over the market for a product, even withinthe protected boundaries of a single advanced country, and in theworld market as a whole, price competition was very far from beingsuppressed. This difficulty is compounded by Lenin’s insistence ontracing the history of the ‘labour aristocracy’ back to nineteenth-century England, when there certainly were many competing firms.

We must, therefore, look at the case where a particular countryhas a monopoly position in the production of some commodity,either in the world market or in colonial markets, but where thereare many small firms competing with each other within the countryconcerned. The main point is that no single firm can afford toconcede higher wages unless its competitors do the same. The factthat the firms in the industry have a monopoly as a group makeslittle difference when there is competition within the group. The

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only way workers can gain is by a general wage increase across thewhole industry, and this can only be achieved by some force thatoperates at that level. A general shortage of labour in the industry isone such factor (which might be the product of its success in gainingcontrol of markets), a strong trades union organization is another,and the intervention of the state is a third. Marx discussed the latterpossibility in relation not to wage increases, but to statutorylimitations on hours of work. Emmanuel’s theory of ‘unequalexchange’ follows the same lines, with trades union action as thedriving force (see chapter 9). Very much the same considerationsapply where the industry has a technical lead over its overseascompetitors, and thus an advantage in productivity. This wasprobably the main factor in the dominant position of Britishcapitalism in the nineteenth century.

Lenin also hinted (the text is not very clear) that profits frominvestment abroad provide a further basis for the bribing of theworking class. This is much more dubious. In general the firms thatreceive profits from abroad will not be the ones that employ theworkers to be bribed in the home country. The profits from Britishinvestment abroad went mainly to individual rentiers, and it is hardto see any plausible mechanism by which the money was transferredto the ‘labour aristocracy’. Rentiers, it is true, often employedservants, but these were generally among the lowest paid sections ofthe working class. Butlers and housemaids do not make a veryplausible basis for revisionist politics.

It is true that there are many interconnections that I have notdiscussed, which provide some basis for working-class support forimperialism. Protected markets, for example, may improve securityof employment. Workers producing luxury goods have, at least, ashort-run interest in the prosperity of buyers of such goods, and soon. These sorts of connections provide a basis for talking of‘national prosperity’ and of a ‘national interest’, in the way thatBukharin did, but to deal with them adequately would require adetailed analysis which neither Bukharin nor Lenin provided.

Both Bukharin and Lenin correctly identified skilled workers asthe better-off stratum of the working class, and therefore tended toidentify them as the beneficiaries of imperialism. In fact,differentials between skilled and unskilled workers were of greatantiquity, and it is not clear that skilled workers, as a group, didparticularly well out of imperialism. To analyse the point further


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would require an analysis of the world division of labour. One couldargue that the work done by unskilled workers is more easilytransferred to establishments in colonies where cheap labour can beemployed, and that skilled workers are more protected from thiskind of competition.

It should also be pointed out that capital export works counterto the workers’ interests, at least in the longer run, by creating jobsabroad at the expense of jobs at home, although it may, in the shortrun, encourage the production of capital goods for export and thuskeep up employment in the industries concerned.

To sum up, Bukharin and Lenin observed that the livingstandards of some workers in some advanced countries had risensignificantly, and that they no longer had ‘nothing to lose but theirchains’. At the same time, the countries where this was happeningwere also those which were coming out on top in the struggle forworld dominance. Our authors deserve great credit for recognizingthat a ‘national interest’ does exist, at least to a certain degree, andthat sectional and nationalistic sentiments among the working classhave a real material basis. There can be no doubt that stratificationof the working class is a very important issue, but subsequentwriters have not generally sought to explain it in terms of colonialprofits or in terms of monopoly in world markets.

6.4 ULTRA-IMPERIALISM

In the years before the First World War, the centre of gravity of thesocialist movement and of theoretical Marxism was in the GermanSocial Democratic Party. The dominant figure, both in theoreticaldebates and in practical politics, was Karl Kautsky. A tradition ofMarxist thought grew up around Kautsky, which was, in its time,the established Marxist orthodoxy (though it is difficult toremember this today, when, with the benefit of hindsight, we tendto focus on Lenin and the Bolsheviks). At the time, the variousRussian groups seemed relatively insignificant.

The leaders of the German Social Democrats had a long traditionof support for free trade, which they associated with low prices and,in particular, low food prices. When Hilferding built his analysis of

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the rise of monopoly around the role of tariffs, and the connectionbetween protection and monopoly, he was working firmly in thistradition, but when he argued that the rise of finance capital hadunified the capitalist class and that finance capital had definitelyseized control of the state, he broke sharply from the orthodoxapproach, which was still rooted in the idea that state policies werethe outcome of a clash of interests representing different fractionsof capital. Kautsky and his school thought of imperialist policies asexpressing the interests of finance capital and of certain monopolygroups, but held that some sections of industrial capital stillretained an interest in peace and free trade. The social democratshoped that by throwing the weight of the working class into thescales against imperialism and militarism, the balance could betipped in favour of peace.

Immediately before the First World War, Kautsky came up witha further reason for optimism about the prospects for peace, in thetheory of ultra-imperialism, that is, the idea that the major powerswould agree to exploit the world jointly, rather than fighting overthe division of the world. A similar line of argument had beenadvanced earlier by Hobson (as Lenin pointed out), using the term‘inter-imperialism’. The importance of this argument in thetheoretical framework of the social-democratic centre was thatinter-imperialist cooperation would draw its support from thosesections of the ruling class who would otherwise have an interest insupporting imperialist policies, and would thus strengthen thepolitical forces working for peace and weaken those prepared torisk war. This idea helped to lull the working-class movement intoa false sense of security on the eve of the First World War, and thuscontributed to the debacle of the Second International on theoutbreak of war.

When the war broke out, Kautsky transferred his hopes for peaceto the post-war period. In a key article, published soon after the startof the war, he wrote:

What Marx said of capitalism can also be applied toimperialism: monopoly creates competition and competitionmonopoly. The frantic competition of giant firms, giant banks


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and multi-millionaires obliged the great financial groups . . . tothink up the notion of the cartel. In the same way the result ofthe World War between the great imperialist powers may be afederation of the strongest, who renounce their arms race. . . .Hence from the purely economic standpoint it is not impossiblethat capitalism may still live through another phase, thetranslation of cartelisation into foreign policy: a phase ofultraimperialism, which of course we must struggle against asenergetically as we do against imperialism, but whose perils liein another direction, not in that of the arms race and the threatto world peace. (Kautsky 1970: 46)

Kautsky argued that this policy of ‘peaceful’ joint exploitation ofthe world by the united finance capital of the great powers would beforced on them by the threat they faced from the oppressed colonialpeoples and from their own proletariat. It is clear, incidentally, thatin describing ultra-imperialism as ‘peaceful’, Kautsky did not meanthat exploited peoples or the proletariat at the centre would betreated with kid gloves. He simply meant that the ruling classes ofthe major capitalist powers would not go to war with each other.

The way this theory was posed, and the way it was attacked bythe left, reveal a great deal about the concepts of imperialism sharedby both sides in the debate. Kautsky argued that the stress mightshift from conflict between imperialist powers to maintenance of aworld system of exploitation. It is surely the latter, the world-widesuppression of colonial peoples by the metropolitan bourgeoisie,which is generally understood by the term ‘imperialism’ today, butKautsky was careful to distinguish it from imperialism as the termwas then understood, and to give it a different name. The verysuggestion that such a shift was possible aroused vehement hostilityfrom the left. For both sides, inter-imperialist rivalry leading to warwas the very essence of imperialism. As I suggested at the beginningof this chapter, the concept of imperialism has shifted its meaningbetween then and now.

There are three different issues that arise in considering thetheory of ultra-imperialism. First, does it make sense on a purelytheoretical level as a possible tendency in capitalist development?

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Second, if so, was this tendency in fact dominant at the time of theFirst World War, or, alternatively, was it reasonable to expect it tobecome dominant within a fairly short time? Third, does this theoryhave anything to offer in understanding the world today? There isno space here to deal fully with the second of these questions, sincedetailed historical and empirical material would be required. Thosewho criticized Kautsky at the time could, of course, only considerthe first two of these questions.

The central reason for left-wing opposition to the theory of ultra-imperialism is obvious. Lenin and his allies thought that a socialistrevolution was on the cards for the near future, and they wanted toargue that war and misery were the only alternative to revolution.In the context of the First World War, idle dreams of the possibilityof lasting peace after the war were a diversion from the real issues.Both Bukharin and, especially, Lenin wrote about imperialismprimarily to challenge Kautsky’s view, and to repair the damagedone to the international socialist movement by the capitulation ofthe parties of the Second International at the outbreak of the war.As far as they were concerned, the intimate connection betweencapitalist development, imperialism, and war was the centraltheoretical basis of their stand against abandoning the struggle forsocialism for the duration. No compromise on this issue waspossible.

Lenin vehemently rejected any idea of ultra-imperialism:‘development is proceeding towards monopolies, hence towards asingle world monopoly [is] as completely meaningless as is thestatement that “development is proceeding” towards themanufacture of foodstuffs in laboratories’ (Imperialism: 530).Bukharin was more moderate: in the abstract a world trust isthinkable, but in reality it cannot come about. He advanced tworeasons for this. First, any agreement between ‘state capitalisttrusts’ must be disrupted by uneven development. The strong willnot in any case accept agreements since they will hope to gain morewithout. Second, if the proletariat became strong enough to preventaggressive policies, as Kautsky hoped they might, they would bestrong enough to establish socialism. Hilferding, who wrote beforeKautsky’s theory of ultra-imperialism was devised, put the same


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argument, but did not come to any conclusion as to whether forceor peaceful division of the market would prevail, though he thoughtthat agreements were only likely to be temporary.

The first of Bukharin’s arguments rests on the assumption thatnational blocs of capital, each exploiting exclusive possession of anational economic territory, must remain the basic units betweenwhich any ultra-imperialist peace would be made. However, inaddition to the reasons Bukharin put forward for the formation ofnationally based ‘state capitalist trusts’, there is a counter-tendency,also arising from factors included in his analysis. For Bukharin, asfor Hilferding, an important motive for capital export is the desireto penetrate the protected markets of other nation states fromwithin. Over a long period of time, this can lead to interpenetrationof national capitals, with the same group of firms operating withineach national economic territory. In this case, a struggle to enlargeone nation’s territory at the expense of others becomeseconomically pointless. To give an example, there would be nopoint in Ford or General Motors seeking to extend their markets bysponsoring US annexation of parts of the EEC, when they aresecurely established in the European industry already. In the sameway, tariff barriers between different markets become a hindrancerather than a benefit once multinational firms are well established.

As for the second argument, that if the working class is strongenough to compel the adoption of peaceful policies it will also bestrong enough to overthrow capitalism, this seems an extremelyschematic argument which does not do adequate justice to thecomplexity of political developments. All of our authorsanticipated socialist revolutions in the advanced countries within afairly short period of time. We have, in fact, seen the emergence of asocialist bloc, and of Third World liberation movements which posea massive threat to world capitalism, forcing the major capitaliststates onto the defensive, together with a political absorption of theworking class into a reshaped political system. It is clear that theorthodox objections to the theory of ultra-imperialism no longerhave the same force.

I am not arguing that Kautsky’s theory is correct as applied to ourown times, only that the arguments that Lenin and Bukharin put

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against him are not decisive on a purely theoretical level. The Firstand Second World Wars provide strong evidence that rivalry leadingtowards war was indeed the dominant tendency at that time, buthere, as elsewhere, they allowed themselves to be drawn by thepressures of debate into overstating their case.

6.5 THE COMMUNIST INTERNATIONAL

After the Bolshevik revolution and the establishment of the SovietUnion, Lenin, Bukharin, and other communist leaders were facedwith a new situation. Among many other issues, they had to take aview on communist strategy in underdeveloped areas, and on therelations between the USSR and colonial areas. Little of theoreticalsubstance emerged (there was too much else to do, to spend muchtime on theory), but the positions taken by Lenin and, after hisdeath, by the newly formed Communist International, had a lastingeffect on Marxist thinking. During the 1920s, the CommunistInternational discussed communist attitudes to anti-colonialmovements: almost the first serious Marxist discussion of the issue.Lenin argued that communists should form a temporary alliancewith bourgeois democratic movements, while remainingindependent, and he also flirted with the idea that it was possible forbackward areas to move to communism without passing through acapitalist stage. By 1928 (after Lenin’s death), the Internationalreversed the traditional Marxist position, arguing that capitalexport and imperialism hindered development in colonialterritories rather than accelerating it (see Szymanski 1981: 44-51;Warren 1980: 84-109).

Warren (1980) made this period the linchpin of his account of thedevelopment of theories of imperialism. There was undoubtedly abreak between Marx’s assessment of colonial expansion as broadlyprogressive, if brutal, and the wholly negative judgement onimperialism of most Marxist writers after the Second World War.Warren blamed Lenin for this shift in opinion, arguing thatalthough Lenin paid lip service to the classical view (which Warrensupported; see chapter 11), the tone of his condemnation ofimperialism as ‘parasitic’ told a different story. As far as


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Imperialism is concerned, I disagree. It is true that some dependencytheorists (see chapter 8) have claimed Lenin for their view, but thisis because they have been determined to do so, not because theyfound much in the text to encourage them. The extracts cited insection 6.2 above, in which Lenin argued that capital exportexpands and deepens the further development of capitalismthroughout the world, make the point. Bukharin and Hilferdingcame closer to the dependency theorists than Lenin did.

Warren was on firmer ground in claiming that Lenin’s politicalstrategy in the 1920s, and the shift of opinion recorded in theresolutions of the Communist International, marked a fundamentalchange of direction. It is important to recognize that support fornational independence in colonies does not in any way conflict withthe classical Marxist position. It is clear from Marx’s writings thathe saw the construction of a modern independent state asimpossible until development had progressed to a certain stage, andboth inevitable and desirable thereafter. However, once Marxistswere committed to national liberation movements, it was fatallyeasy to slide into blaming foreigners for economic backwardness.The 1928 resolution of the Communist International was an earlyexample of this, but it was not backed by any serious economicanalysis.

6.6 SUMMARY

Bukharin combined the analysis of the internationalization ofcapitalist relations of production (Marx, Luxemburg) withHilferding’s analysis of the formation of blocs of finance capital, toshow why these blocs formed on a national basis. The competitivestruggle continued in the era of finance capital, but it took the formof military and political rivalry between ‘state capitalist trusts’.Lenin’s Imperialism followed the same lines on a lower level ofabstraction, providing a forceful descriptive account ofimperialism. Both argued that capital export accelerateddevelopment in underdeveloped areas (though Bukharin was morecautious in his predictions), both discussed how workers inimperialist centres gain some (limited) advantages from the success

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of ‘their’ nations, thus explaining the material basis of working-class national ism, and both thought that inter-imperialist rivalrymade inter-imperialist war inevitable.

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7

Baran

From theories of imperialism developed between 1900 and 1920, Iturn to theories put forward after the Second World War, since theperiod between the wars produced no notable innovations in theMarxist theory of imperialism. The success of the Russianrevolution and the defeat of revolution in western Europe widenedthe rift between social democrats, and communists,institutionalized with the formation of the Third International, the‘Comintern’, and of separate communist parties in the variouscountries of Europe. The rise of Stalin in Russia was followed by theimposition of a grey orthodoxy in matters of theory, not only inRussia but in all of the communist parties. The victory of fascism inmuch of continental Europe further disrupted any seriousdevelopment of Marxist theory. I will not discuss the textbooks ofMarxism produced in the Soviet Union; they reproduced Leninrather mechanically and tended, as far as imperialism is concerned,to draw on the weaker aspects of Lenin’s writing, stressing the‘overripeness’ of capitalism and interpreting it in an under-consumptionist sense (see Kemp 1967, ch. 7 on some of theseworks). In the early 1920s, before Stalin had consolidated hispower, there were notable debates on economics in Russia, but theywere, naturally, directed mainly to problems of post-revolutionaryeconomic policy.

Marxist economics, understood as the study of capitalist (notsocialist) economies, was kept alive through this period by ahandful of writers working in isolation in the West. Maurice Dobbwrote a number of valuable works, but had little new to say aboutimperialism (Dobb 1940, ch. 7; Dobb 1963: 311 ff.). Paul Sweezy’stextbook, The Theory of Capitalist Development (Sweezy 1942),

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is an important bridge between classical Marxist writings and morerecent work.

Paul Baran’s Political Economy of Growth (Baran 1973, citedbelow as PEG), published in 1957, marked an important shift inMarxist theory, both in the problems to which it was addressed andin its theoretical content. Rivalry and war had receded into thebackground in the new circumstances of American dominance.Baran stigmatized monopoly capital as a cause of stagnation, inboth advanced and underdeveloped countries. At the same time, hewas the first major Marxist theorist to treat underdevelopedcountries as worthy of study in their own right. Lenin, it is true, hadwritten about the Development of Capitalism in Russia (1974), butRussia was semi-developed rather than underdeveloped. Barandiffered from his predecessors in treating the development ofcapitalism in underdeveloped countries as a different process fromthat which the advanced countries had gone through earlier. Thisapproach dominated Marxist thinking about underdevelopmentuntil at least the 1970s.

Baran worked closely with Sweezy over a long period, acollaboration which culminated in their joint work, MonopolyCapital (1968). It is rather unprofitable to try to determine whichwas the original author of the general line of thought that theyrepresent. There is a consistent line of development from TheTheory of Capitalist Development, through the Political Economyof Growth to Monopoly Capital, starting fairly close to classicalMarxism, and evolving into something distinctively different. AsMarxist economics revived in the 1960s, Baran and Sweezyprovided an important starting point, especially in America, Northand South; Monthly Review (edited by Sweezy and others),nurtured a whole school of writers.

7.1 MONOPOLY AND STAGNATION

Baran and Sweezy were, as remarked above, ‘underconsumptionists’,who thought that capitalist economies suffer from a chronic lack ofdemand because of the restricted purchasing power of the workers.Their whole argument is remarkably close to Hobson’s, though theyseem to have been rather unwilling to acknowledge the fact. I have


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already discussed Hobson’s version (chapter 4), so I will be brief. InThe Theory of Capitalist Development, Sweezy argued thatcontinuous expansion in a capitalist system is logically impossible, ifone takes account of various tendencies described by Marx. Thisargument applies at all stages of capitalist development. He alsoargued that it was unlikely that monopoly enterprises would carryout enough investment to sustain demand. The second argument isthe one developed by Baran. They are combined, in a rather differentform, in Monopoly Capital.

Sweezy’s first argument runs as follows: as capitalism develops,the share of wages and hence of wage earners’ consumption in totaloutput falls, while the concentration of capital into fewer handsmeans that a falling share of profit is consumed. Consumptiontherefore absorbs a falling share of total output (this prefigures the‘law of rising surplus’ in Monopoly Capital), and the falling shareof consumption must be matched by a rising share of investment.Consumption and investment both increase over time, but ifdemand is to expand in line with output, investment must rise fasterthan consumption. Sweezy argued that new investment is onlyrequired to expand the capacity to produce consumer goods (thispoint is implicit, not explicit), and that there is a technically fixedratio between new investment and the additional output ofconsumer goods produced, so the two can only expand in step.There is then a contradiction between the requirements thatinvestment should increase faster than consumption, to maintaindemand, and the technical requirement that they increase at thesame rate. He concluded that demand will fail to match output,unless some way is found of absorbing output in unproductive uses(military spending, etc.) or through capital export.

The flaw in the argument (which is exactly the same as Hobson’s)is obvious; Sweezy assumed that means of production are only usedto produce consumer goods, but investment also goes into theindustries that produce means of production. A lower share ofconsumption could be balanced by faster growth, with moreinvestment going into industries that produce investment goods.There is no assurance that this will happen, of course, but if enoughprofitable investment opportunities exist then the opportunity toaccelerate accumulation will be taken. The prospect of profit drivescapitalism, not the expansion of consumption. Rejecting Sweezy’s

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under-consumption analysis, leaves the rate of investment, itselfdetermined by investment opportunities, to determine whether thegap between output and consumption will be filled.

Sweezy had a further argument, distinct from theunderconsumption argument, which predominates in Baran’sPolitical Economy of Growth, and in their joint work, MonopolyCapital. I shall concentrate on Baran’s formulation, since it seemsmore complete than those in the other works cited. He argued thatthere are two motives for investment: to introduce new techniquesof production and to expand output. A monopoly will hold back onthe introduction of new techniques, because they threaten to makeits existing equipment obsolete, while it will not expand outputbecause it would have to cut prices to sell more, reducing its profits.He contrasted competitive capitalism with a capitalism dominatedby monopolies. In competitive capitalism, any firm which holdsback on cost-reducing innovations will be driven out of the marketby the low prices of its competitors. Competitive firms invest toexpand output because they are each trying to expand their share ofthe market, heedless of the effect on the total output and price. Afirm which held back on expansion would fall behind itscompetitors, would end up with higher costs, and would lackresources to introduce new methods of production.

There is a noticeable shift here from the classical Marxistposition. The classical Marxists regarded the tendency towardsmonopoly as a factor intensifying competition, not suppressing it,although it is true that they were not wholly consistent in this. Baranand Sweezy, by contrast, argued that the competitive strugglevirtually vanishes when there are only a few large firms operating ineach market, since they will generally adopt a ‘live and let live’policy towards each other. Hilferding had discussed this possibilityin a rather open-minded fashion, but Lenin and Bukharin hadrejected it as part of their rejection of ‘ultra-imperialism’. There issomething of a paradox here. While the classical Marxists,especially Bukharin, tended to talk as if each national economy wasdominated by a single ‘state capitalist trust’, their thoughts wereinfluenced by the fact that concentration had not gone that far inreality. The main form of monopoly was the relatively fragile cartelagreement between rather a large number of firms, liable to breakdown into furious competition. Baran and Sweezy, writing later,


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stressed that there were typically several firms, not just one, in eachmarket, but that they were few enough and established enough tomaintain a stable ‘balance of power’.

It is necessary, however, to evaluate the theoretical argument.Will monopolies in general invest less than competitive firms woulddo? I do not believe that Baran and Sweezy established this centralpoint. Consider technical innovation first. There has been a massivedebate on the effect of market structure on technical advance, andno clear empirical evidence has emerged of the superiority ofcompetitive markets. Any greater incentive that small firms may feelto innovate is offset by their reduced capacity to do so. (See, forexample, Hay and Morris 1979, ch. 13 and references cited there.)On the level of theory, the case is not clear cut anyway. Both amonopoly and a competitive firm have an incentive to minimizetheir costs: there is, therefore, an incentive to adopt any innovationthat reduces costs. In both cases it pays to introduce new equipmentand throw away the old only if the total cost of production with thenew equipment is lower than the direct cost of production on the old(since the capital cost with the old equipment is already sunk: thealternatives are to throw it away, or go on using it as long as it givesany return at all towards the capital costs). Baran was aware of this(PEG: 198-9) but introduced other arguments resting on the risk ofcommitting capital and the limited supply of capital to the firm. Heargued that these will lead monopolies to hold back wherecompetitive firms are forced to go ahead. One can argue, on theother hand, that large firms devote much resources to the deliberatesearch for new methods of production and new products, and thushave more opportunities to innovate, even if they are slower intaking up some of them. What Baran’s argument comes down to isnot that monopolies slow down technical change in the long run,but that they will introduce new techniques less wastefully and thuswith less investment. Whether this helps or hinders capitalistdevelopment depends on whether, in the long run, capitalistexpansion is more often slowed by lack of demand or by lack ofresources to exploit the technological opportunities open to it. Inother words, the way monopolies respond to technical change onlyleads to a shortfall of demand in a framework in which a shortfallof demand is a problem anyway.

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The main weight of the argument thus falls on the claim thatmonopolies restrict the expansion of output to protect monopolyprofits. This is a static argument applied to an essentially dynamicproblem. For a given level of costs and of demand, there is aparticular price and output which give the maximum profit. Amonopoly will continue to produce this output, and will notinvest for expansion, as long as the given conditions remain thesame. To analyse investment we must look at changes in costs anddemand. The static model cannot help. A similar static model ofa competitive industry can be constructed. Again, with givencosts and demand, there is a determinate equilibrium output. Anyexpansion of the industry would depress profits and induce anoutflow of capital. In this case too, the rate of investment isgoverned by changes in costs and demand (see Matthews 1959:33 ff.).

The determinants of changes in demand must be sought in theeconomy as a whole. Expansion in one industry creates demand forinvestment goods, and also creates jobs, expanding demand forconsumer goods. The expansion in demand, if not offset bycontraction elsewhere, has a cumulative effect. Other industriesstep up investment, and this generates further expansion. Thiscumulative process will work through whether the economy iscompetitive or monopolistic, though not necessarily in exactly thesame way. The same process works in reverse when demandcontracts. As a result, a capitalist economy moves through asequence of booms and slumps. The major factors determining theoverall rate of investment over a long period of time must thereforeeither be forces that manifest themselves slowly but steadilythrough boom and slump, or forces that actually work through themechanism of the cycle, through the relative strength of boom andslump and through the limiting factors that halt a boom or adepression. The desire of monopolies to avoid spoiling a given,static, market by overexpansion does not fit the bill at all.

It has to be admitted that nobody has a really satisfactory theoryof the determinants of investment, or their relation to thepredominance of monopoly or competition in the economy. Indefault of any theory, we must turn to the evidence. Baran, writingin the 1950s, looked for evidence mainly to the period before theSecond World War. The depression of the 1930s, the deepest and


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most prolonged in history, made it easy for him to find examples ofthe failure of monopoly capitalism. The ‘long boom’ of the 1950sand 1960s suggests strongly that monopoly capitalism is notincompatible with growth. The ‘long boom’ was a period of rapidgrowth in the world capitalist economy which far outstrips any suchepisode in the epoch of competitive capitalism. Baran and Sweezyshould have realized this when they wrote Monopoly Capital in the1960s, but they seem to have been misled by an excessiveconcentration on the American economy. It was, of course, Japanand Europe that were the main centres of growth.

7.2 GROWTH AND SURPLUS

The idea of an economic surplus goes back to the classicaleconomists and the ‘physiocrats’, who thought in terms of aphysical surplus, available to society or to the state, over and abovethe part of output needed to maintain the population and the capitalstock intact. This surplus or ‘net product’ could be used foraccumulation, for military purposes, or for the development ofculture (see, for example, Ricardo’s Principles, 1951, ch. 26). Marxtransformed the idea into an expression of class relations; surpluslabour is the labour that an exploited class has to do to producegoods for its exploiters. In a capitalist society, this takes the form ofsurplus value, corresponding to a surplus product, goodsappropriated by capitalists for their own consumption, forinvestment, or for unproductive workers and hangers-on.

Baran reverted, essentially, to the classical, pre-Marxist,definition, for very much the same reasons as the classicaleconomists: to discuss the ‘nature and causes of the wealth ofnations’. He defined economic growth as ‘increase over time in percapita output of material goods’ (PEG: 128). To measure growth,we must have some way of aggregating the output of materialgoods; Baran discussed the issue, but decided to assume that‘increases of aggregate output can somehow be measured’ (PEG:129). The point is not the technical problems of measurement, butthe fact that Baran conceptualized growth in quantitative terms,unlike earlier Marxist writers whose focus was on qualitative

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change in the social relations of production. In some ways thisrepresents a step forward, since ideas like the ‘development of theforces of production’ and ‘increases in the productivity of labour’,which are central to a Marxist analysis of capitalism, are essentiallyquantitative. There is, however, a danger that qualitative changeswill be overlooked and that socialism may be seen solely as a meansto more rapid growth.

Baran had a very simple theory of the determinants of economicgrowth. He listed a number of factors generating growth (PEG:129-31), but emerged with new net investment in means ofproduction as the dominant factor. Since net investment is part ofthe economic surplus, he concluded that the size and use of thesurplus is the key factor in economic growth. He defined netinvestment as the net addition to the stock of means of production,the definition used by mainstream economics. Marx, on the otherhand, defined capital by reference to a specific social relation, socapital accumulation, for Marx, includes wages advanced to newworkers, but excludes additions to means of production used innon-capitalist sectors of the economy. Marx included, under theheading of ‘primitive accumulation’, the transformation of meansof production (and consumption goods) into capital by transferfrom a non-capitalist to a capitalist sector. In Baran’s framework, itsonly significance lies in the changes in the use of the surplus thatfollow from it.

Baran’s purpose was to argue that capitalism was, at one stage, a(moderately) efficient engine of growth, but that socialism wouldnow do the job better, so he needed to conceptualize growthindependent of social relations, in order to be able to comparegrowth in socialist and capitalist systems. This is, in a way, fullyconsistent with the perspective of classical Marxism: he wasarguing that capitalism has become a fetter on the development ofthe forces of production and has thus come to the end of itshistorically allotted span.

He defined the actual surplus as the difference between currentnet output and current consumption. Since virtually all uses ofoutput other than investment in new means of production are to becounted as consumption, the actual surplus is equal to netinvestment plus any outflow (or minus any inflow) of funds across


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the boundaries of the country concerned. This does not mean thatsurplus necessarily determines investment; if investment isinsufficient to absorb the (potential) surplus, either output falls orsurplus must be diverted to current consumption. In a capitalistsystem goods will not be produced if there is no demand for them.For the world as a whole, the actual surplus must equal netinvestment (plus additions to stocks of gold, which can be ignored),so any discrepancy for one country must constitute a transfer ofsurplus for investment in another country. In a capitalist world, thistransfer can come about by exports of capital (which remain theproperty of capitalists from the capital exporting country) or byflows of profits, dividends and interest as a result of previous acts ofinvestment. It can also take the form of flows of ‘tribute’ directlyextracted from colonies by a dominant power.

The potential surplus is the amount that a totally growth-orientated society could devote to investment without reducingcurrent consumption below some minimum necessary level. It isthus ‘the difference between the output that could be produced in agiven natural and technical environment with the help ofemployable productive resources, and what might be regarded asessential consumption’ (PEG: 133). There are considerableconceptual and practical difficulties of measurement here (Taylor1979: 79), but Baran did not use the concept in a quantitative way,being content to indicate that a large gap exists between thepotential surplus and the actual level of investment.

Baran spent some time discussing which kinds of labour areproductive and which are unproductive. From the point of view ofthe definitions, it is more relevant to think of the way in whichdifferent products are to be treated, since the definitions of surplusare cast in terms of the output and use of products. Put simply, anyoutputs that Baran disapproves of (‘that would be absent in arationally ordered society’) are to count as part of actualconsumption, but not of necessary consumption. They thus accountfor part of the gap between the potential and actual surplus. (Icannot resist the thought that the working class might, in a‘rationally ordered society’, allot themselves a chromium-platedCadillac each, if only to annoy puritanical intellectuals like Baran.Who, after all, is to decide what is rational?)

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The third concept of surplus is the planned surplus, a conceptrelevant only to a socialist society, which plays little part in thefurther development of Baran’s arguments. It is the differencebetween an ‘optimal’ level of output (perhaps less than themaximum possible output because of shorter working hours, etc.)and an ‘optimal’ level of consumption. It thus represents theoutcome of a deliberate and conscious collective choice betweenconsumption and investment.

Baran’s procedure is now fairly obvious: the planned surplusrepresents the use that a rational society would make of its potentialsurplus. In a capitalist society, the actual surplus falls short of thepotential surplus, and it is the size and use of the surplus, the relationbetween actual and potential surplus, that is the focus ofinvestigation.

7.3 THE DEVELOPED COUNTRIES

Baran’s discussion of the advanced capitalist countries was really adiscussion of the USA, though he did not say so. Virtually all of theexamples and evidence that he gives are American, and the wholestory makes much more sense in that context than it would appliedto, say, Japan or West Germany. It is worth noting that the conceptof a ‘nation state’ or a ‘national economy’ is taken for granted as theunit of analysis, with no serious discussion. It becomes clear, fromthe discussion of concepts like surplus, investment and so on, thatthey are aggregates at a national level.

For the advanced capitalist countries, the argument turns on acontrast between competitive and monopoly capitalism, though itis presented, rather confusingly, in terms of a contrast between theidealized model of competition held by the classical economists andthe reality (as Baran saw it) of monopoly capital; the idealizedmodel ‘indicates, at least approximately, the essential principles ofthe mechanism that has actually provided for . . . an unprecedenteddevelopment of productive forces’ (PEG: 165). In this account,competitive capitalism maximizes the surplus by depressingworkers’ consumption to a minimum, encouraging capitalists tosave, and eliminating unproductive spending. The surplus is


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directed mainly into investment because of competitive pressures toinnovate and to expand. Competitive capitalism is thus a powerfulagent of growth.

The evolution of the surplus under monopoly capitalism provesrather difficult to pin down:

The economic surplus generated under monopolistic capitalismis, however, as large as is possible in the only relevant sense ofthe notion, that is, taking into account the prevailing level ofoutput, the market mechanism responsible for the distributionof income under capitalism as well as the more or less steady riseof conventional standards of subsistence. (PEG: 177)

In other words, it is what it is. It is, however, large and rising. Baranseems here (it isn’t very clear) to have used a concept of surplus astotal profit plus other property income. He returned, in otherwords, to Marx’s concept, though in terms of prices, not values.

He concentrated on the use of the surplus, arguing thatmonopolies will tend to invest less than they might, so there is achronic lack of demand unless other stimulating factors take over. Ihave already described (and rejected) this picture of monopoly as acause of stagnation, which is the heart of Baran’s case againstmonopoly capitalism. If surplus is not used, however, it will not berealized in money terms at all. Goods that cannot be sold will not beproduced. The resulting unemployment will reduce consumption,cutting total sales and output still further. The central problem formonopoly capitalism, therefore, is to avoid a slump of thedimensions of the 1930s or worse. This is achieved, in Baran’saccount, by the absorption of surplus in various forms of waste,some a response to the lack of demand, some a fortuitous result ofother developments in capitalism. Because of the chronic lack ofdemand, sales effort is stepped up and part of the potential surplusis diverted into advertizing, wasteful product differentiation and soon. (This argument is more fully developed in Monopoly Capitalthan in The Political Economy of Growth.) Another part of thesurplus is devoted to a proliferation of unproductive activitieswithin the giant firm, for reasons not directly connected with thelack of demand, but tending, all the same, to relieve it.

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State spending absorbs large chunks of the potential surplus invarious wasteful ways, notably through military spending. Barandiscussed the possibility of useful state spending, but judged itunlikely on political grounds. The ruling class is, first, ambivalentabout state spending; it wants demand to be maintained, whichrequires that the surplus be used, but at the same time wants toretain ownership of the surplus and resents parting with it in taxes.Second, there is fierce opposition to any collective provision thatcompetes with private provision. The state will, in any case, not aimat genuinely full employment, since a certain amount ofunemployment is necessary to maintain labour discipline and keepwages down. These arguments allowed Baran to accept thesubstance of a Keynesian analysis of unemployment while rejectingthe Keynesian argument that state intervention can produce a stableand conflict-free capitalism. In the same way, Baran rejected theargument that an increase in wages or in transfers to the poor couldrelieve the problem by raising consumption. This was Hobson’sprescription, but Baran joined Lenin in arguing that it was not apossible way out in a capitalist framework.

Military spending, with related forms of expenditure, such asspying, military aid to allies, and so on, emerges as one of the fewforms of state spending which can absorb the surplus withoutharming the interests of any powerful fraction of the ruling class.Military spending is, in Baran’s analysis, intimately tied up withimperialism.

Baran did not give a definition of imperialism, nor is it clear fromhis use of the word exactly what he meant by it. He used the wordbroadly to indicate a policy and an ideology of expansionism (likeBukharin) rather than a stage of development (Lenin). It does notnecessarily imply a policy of formal territorial expansion, butincludes more general policies designed to forward the interests ofthe country’s citizens and, specifically, its giant corporations, allover the world. It does not necessarily imply rivalry betweenimperialist powers (though Baran did mention rivalry in a rathermuted form; PEG: 242-3). To put it very briefly, Baran’s account ofthe origins of imperialism follows broadly classical Marxist lines,but he argued that its effects in the advanced countries were mainlyfelt through the military and other spending involved; in effect,


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imperialism ends up virtually as an excuse for state spending. Thisrather surprising conclusion needs further examination.

The export of goods does not help to absorb surplus, since it mustbe balanced by a corresponding import of goods or export ofcapital, or the balance of payments is disturbed and will force areadjustment (by revaluation of the currency or by other means).This does not prevent individual enterprises from trying to alleviatetheir own problems of deficient demand by seeking export markets.

The export of capital, on the other hand, leads to a balancingexport of goods (to keep the balance of payments in line), and thusdoes help to absorb surplus. At the same time individualmonopolistic enterprises, unwilling to expand at home for fear ofspoiling the market, are anxious to expand abroad. The worldmarket is not as thoroughly carved up as national markets are(PEG: 240), though the same desire to avoid competition that holdsthem back at home is at work here too (PEG: 239). Baran was veryambivalent. On the one hand he needed capital export as animportant link in his argument, but on the other hand he wanted toretain his picture of monopoly as a force holding back investmenton a world as well as a national level. For reasons which will beexamined later, he maintained that underdeveloped countries onlyoffer very limited scope for profitable investment. In any case, as hiscritics have pointed out, the export of capital only helps to absorbsurplus in a very temporary way, since he argued that the returnflows of profits and dividends, which augment the surplus, soonoutweigh the outflow of capital. This does not really damage hisargument, since it is individual corporations that decide to investabroad, and they are trying to maximize their profits.

Baran argued that corporations call for, and get, governmentsupport for their activities abroad, in the form of military, economicand diplomatic pressure on the government of the host country,leading to massive spending on the maintenance of a militaryestablishment, on foreign aid, technical assistance and so on. Thisis the real significance of imperialism:

What matters here is not whatever increases in income andemployment an imperialist country may derive from foreigntrade and investment. These need not be very large, even if of

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vast importance to the individual corporations involved and thegroups associated with them. . . . The issue appears in analtogether different perspective when not merely the directadvantages of imperialist policies to the society of an advancedcapitalist country are taken into account but when their effect isvisualised in its entirety. The loans and grants to so-calledfriendly governments, the outlays on the military establishment. . . all assume prodigious magnitudes. . . . Thus the impact ofthis form of utilisation of the economic surplus on the level ofincome and employment in an advanced capitalist countrytranscends by far the income- and employment-generatingeffect of foreign economic activities themselves. The latterassume actually only incidental significance compared with theformer – an errant stone setting in motion a mighty rock. (PEG:245-6)

At first sight it is difficult to accept this argument. It is surelyirrational to incur all the real risks (of war, for example) involved inan imperialist policy purely to gain the benefits of state spendingwhich could be gained anyway by redirecting state spending tomore useful ends. This is precisely Baran’s point; it is irrational but(he claimed) it happens, because capitalist politics is not rational,and because certain powerful interests gain from this policy whileothers would be threatened by any alternative. The argument is infact a neat inversion of an old radical critique of colonialism. It hasoften been argued that the possession of colonies gives advantagesto a favoured few, but that on balance the costs to the ‘nation’exceed the benefits. Radicals have therefore argued that the peopleas a whole should oppose imperialist policies. Given his under-consumptionist stance, Baran can argue that the ‘costs’ ofimperialism are, in fact, benefits, since they help to maintaindemand and employment by absorbing the surplus. There is thus acoincidence of interests between the direct beneficiaries ofimperialism and the mass of the people (as long as the onlyalternative to monopoly capitalism with imperialist policies ismonopoly capitalism without these policies). Hobson, of course,considered exactly the same argument, but claimed that income


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redistribution could remove the need for an imperialist policywithin a capitalist framework.

Baran mentioned Lenin’s idea of a ‘labour aristocracy’ in thiscontext, but it is clear that his ideas were not the same. All he tookfrom Lenin was the possibility that ‘the policy of imperialism mayactually be of benefit to the ordinary man in an imperialist country’(PEG: 245). Lenin, however, saw the benefits as a sharing ofmonopoly profits in the form of higher wages for a minority of theworking class while Baran saw them primarily in terms of betteremployment prospects for the working class in general.

Baran’s case depends, first, on the general presumption thatmonopoly capital has difficulty in absorbing the surplus and thatwaste is therefore, paradoxically, good for monopoly capital andfor the population as a whole (so long as the basic frameworkremains unchanged), and, second, on the existence of a particularpolitical constellation that permits some forms of state spendingwhile barring others. Both of these presumptions looked moreplausible in the USA in the 1950s and 1960s than they would inother places and at other times. A final comment: Baran’s argument,as presented in this section, was virtually a carbon copy ofHobson’s. Regrettably, Baran did not give Hobson his due credit.

7.4 THE ORIGINS OF UNDERDEVELOPMENT

Baran divided the world economy into two parts: advancedcapitalist countries and underdeveloped countries. Socialistcountries were only discussed as models for others to follow; as longas they engage only in planned and balanced trade with the rest ofthe world, they have little direct economic effect on the capitalistworld. Countries in an intermediate stage of development are alsolargely ignored.

The interactions between advanced and underdevelopedcountries can be gathered under three headings: flows of trade,flows of surplus, and political-military influence. Trade flows serveto provide cheap sources of primary products to the advancedcountries, while the development of industry in underdevelopedareas is discouraged by the competition of manufactured products

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imported from the advanced countries. Surplus flows, in the formof profits and dividends, deprive the underdeveloped countries ofmuch-needed resources for investment (though they might not beused even if they were available), while adding to the problemscaused by an excessive surplus in the heartlands of monopolycapital. The political influence of the advanced countries helps tomaintain governments in underdeveloped areas which are welldisposed to foreign investors and which hold back indigenousdevelopment. All these forces, as they affect the underdevelopedareas, will be discussed in more detail in subsequent sections.

To set up this bipolar model of the world system, Baran had toexplain the origins of the massive discrepancy in accumulatedcapital, wealth, and power between advanced and underdevelopedareas. The high level of development in the heartlands of capitalismwas no problem; according to Baran, competitive capitalism was aforce for rapid development, and the advanced capitalist economieshad been dominated by competitive capitalism during a longperiod. The problem is to explain why the same process did notoccur elsewhere.

Baran argued that before the period of European colonialism,there was ‘everywhere a mode of production and a social andpolitical order that are conveniently summarised under the name offeudalism’ (PEG: 268). Despite differences between areas, thisorder ‘had entered at a certain stage of its development a process ofdissolution and decay’, which created the possibility of capitalistdevelopment. Marx, by contrast, thought that there were majordifferences between the mode of production in Europe (feudalism)and that in Asia (‘Asiatic’).

Baran identified three pre-conditions for capitalism: an increasein agricultural output accompanied by the displacement of peasantsfrom the land, a growth of commodity production and of thedivision of labour, and the accumulation of capital by merchantsand rich peasants. Of these, he assigned strategic significance to thethird, the accumulation of capital in the form of merchant capital,on the grounds that the other two were proceeding at a roughly evenpace everywhere. The development of merchant capital in Europewas the basis of European expansion, and of a process in whichEuropean capital siphoned off surplus from the rest of the world.The world economy, starting from a state of near parity between itsdifferent parts, was divided into rich and poor areas by a redivision


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of surplus. This explanation is set out mainly in terms of acomparison of India, massively looted and exploited by its Britishconquerors, with Japan, which remained independent and becamea major capitalist power. In addition, Baran stressed state supportfor capitalist development. Independent states took measures toprotect new industries from competition, to provide infrastructure,and so on, while the colonial administrations of subject territoriessystematically discriminated against local producers who mightcompete with the ruling country.

Baran’s work represents a move towards seeing capitalistdevelopment as the development of one area at the expense ofothers. Ultimately this can lead to a view of history as a zero sumgame, a struggle for the division of a fixed world income. It wouldbe unfair to accuse Baran of this, given his stress on the progressivecharacter of competitive capitalism and its creation of ‘anunprecedented development of productive forces, . . . a giganticadvance in technology, and . . . a momentous increase in output andconsumption’ (PEG: 165). His successors, notably Frank, movedfurther away from the classical Marxist analysis.

7.5 THE PERSISTENCE OF UNDERDEVELOPMENT

Whatever the origins of underdevelopment, Baran argued that afairly uniform and characteristic social and economic structure hadcome into existence in the underdeveloped countries, where itblocks further development. The main elements of this structureare: a large and very backward agricultural sector with small-scalepeasant production and a parasitic landlord class; a small butrelatively advanced industrial sector, partly foreign owned,producing for the restricted local market; a number of enterprisesproducing for export, typically foreign owned and producingprimary products; and finally a large sector of traders, includinglarge-scale merchants who control foreign trade and have closelinks with foreign capital, as well as petty traders who penetrate intothe remoter rural areas.

Baran described this a ‘capitalist order’ (PEG: 300), but theagricultural sector seems to be characterized by pre-capitalistrelations of production. Baran did not in fact differentiate at all

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clearly between capitalist and pre-capitalist modes of production inhis discussion; the correct way to draw this distinction has sincebecome a matter of fierce debate. Read in terms of an ‘articulationof modes of production’, Baran’s description would amount toidentifying a capitalist urban industry and export sector and apredominantly pre-capitalist rural sector, with merchant capitalforming the principal link between the two. This is, I think, howAmin interprets it. On the other hand, we could regard these asbeing different levels in a ‘chain of metropolis-satellite relations’ inwhich towns are satellites of the imperialist countries, and thevillages are satellites of the towns, as Frank did (cf. Barone 1985, ch.4). Baran made the internal structure of underdeveloped countriesinto a central issue in Marxist theory, but his rather descriptive andpractical approach leaves the way open for a number of differentinterpretations.

The starting point of the analysis was, naturally, the economicsurplus in underdeveloped countries. He argued that the surplus,while small in absolute terms because of the low level of output, islarge in relative terms because mass consumption is depressed to thelowest possible level. The economic surplus is therefore largeenough to permit a fairly rapid rate of growth, although from a lowstarting point. The explanation for lack of growth inunderdeveloped countries must lie in the use of the surplus, not inits size.

He put forward a double explanation for the lack of productiveinvestment in underdeveloped countries. The surplus is notavailable for investment because it is either drained away to theadvanced countries or absorbed in unproductive uses, but even if itwere not diverted it would not be used for investment, because theincentive to invest is too low. Baran did not separate these twoarguments, and so did not explain why he put both forward.Presumably, if the surplus were available for investment but was notinvested, this would show up in a chronic lack of demand, fallingprices, and an outflow of capital, while if the investmentopportunities were there without the available surplus, there wouldbe a permanent boom and a capital inflow. With both a lowavailable surplus for investment and a low incentive to invest, thereis a sort of low-growth equilibrium. The two arguments are, in anycase, not wholly separable since the low incentive to invest is, in


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some instances, the cause of the diversion of surplus into other uses.Savings and investment decisions are not entirely separated. I shallfollow Baran by going through the different sectors in turn, lookingat the generation and use of surplus.

The largest sector in most underdeveloped countries isagriculture. Baran described two ways in which agriculturalproduction may be organized: small-scale peasant production or asystem of large estates. These may be combined in differentproportions in different areas. Where subsistence peasant farmingpredominates, productivity is very low because of the small scale ofproduction and the archaic methods used. Despite this, a largefraction of total output is taken by landlords, demonstrating theexistence of a substantial surplus. Peasants do not invest inimproved methods of production, because they cannot afford to(the surplus is being drained away from them), and because thereare, in any case, few opportunities for mechanization as long as theland is subdivided into very small holdings.

Landlords do not invest in improvements because they cannot besure of getting a return in the form of higher rent, because thesmallness of holdings makes many forms of investment impossible,and because the surplus that they control is largely absorbed by ‘thenecessity of maintaining the style of life appropriate to their statusin society’ (PEG: 304). What savings they do carry out are divertedinto money lending or into the acquisition of additional land, andthus, presumably, into consumption by impoverished peasants whoare driven to borrow or to sell off their land. Here it is clear that it isthe social relations of production that are the obstacle todevelopment, and that these are essentially pre-capitalist relations.This point has been argued more explicitly and forcefully bysubsequent writers.

Where there are large estates worked by hired labour, where, inother words, agriculture is capitalist (Baran did not say this),investment is deterred because labour is cheap and machineryrelatively expensive, while the returns on investment are typicallyuncertain and slow to materialize. Here we see a different argument;capitalism in underdeveloped areas suffers from difficulties whichhamper its full development. This line too has been followed by anumber of writers; on the effect of low wages, see chapter 9.

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Baran was not enthusiastic about agrarian reform as an answer,if all it does is to relieve the burden of rent and subdivide the largerestates. Since they are so poor, peasants spend any increased incomeon consumption, while the barriers to progress caused bysubdivision of the land are intensified. In the (now) advancedcapitalist countries, the development of capitalist agriculturecentralized agricultural production, and expelled peasants from theland, raising productivity and providing simultaneously anindustrial proletariat, a market for industrial products and a supplyof agricultural products to feed the industrial workers. (See Marx’saccount of primitive accumulation.) Baran argued that agrarianreforms can only succeed in the context of industrial development,and of state policies to encourage the expansion of capitalistindustry. They are not, by themselves, any answer and may makematters worse. The exact reasons why the capitalist road inagriculture can only be followed if there is simultaneous industrialdevelopment are not clear. It is true that labourers expelled from theland by capitalist agriculture will only find jobs in industry if thereis industry to employ them, but need that be any concern of thecapitalist farmer? Capitalist agriculture has in fact developed fairlyrapidly in many underdeveloped areas, with a correspondinggrowth of urban unemployment. Baran’s hostility to small-scalefarming may have stemmed from a preference for collectivization inagriculture; if so, few will now agree.

An important part of the surplus accrues to ‘merchants, moneylenders and intermediaries of all kinds’, who can be describedcollectively as merchant capital (Baran avoided this convenientterm). Merchant capital can exploit the many opportunities formonopoly profit in the ‘disorganized and isolated’ markets ofunderdeveloped countries but, at the same time, monopoly profitsattract new recruits to this stratum from declassed landlords, richpeasants and so on. Intensified competition leads not to an erosionof monopoly profit but to the creation of ever-smaller and morelocal monopolies. The result is a large, and parasitic stratum oftraders, absorbing large parts of the surplus despite the relativepoverty of many of its members. The subdivision of merchantcapital, like the subdivision of land, is a barrier to progress. Baranrecognized that large-scale merchants exist too (just as largeplantations do in agriculture); they are deterred from investing their


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profits productively by the relatively low returns on productiveinvestment and the attraction of alternative uses of funds. Baran’sdescription of the parasitic hold of merchant capital is convincing(PEG: 308-13), but his explanation of this stage of affairs is sketchy.In the advanced countries too there was a stage in which merchantcapital dominated, but it was thrust aside by industrial capital. Thepersistent hold of merchant capital in rural areas of theunderdeveloped world must be explained by the restricteddevelopment of both agriculture and industry, especially, in Baran’saccount, the latter.

Baran’s explanation for the lack of industrial development is thecrux of his explanation of underdevelopment, and has severalinterconnected elements. Competition from abroad stifles infantindustries, narrow markets discourage development, and whatindustrial development there is rapidly takes a monopolistic formand becomes a barrier to further progress. These handicaps applied,to a degree, to present advanced countries in the initial stages oftheir growth, but were overcome with resolute state support; thelack of equivalent support from the state is a further factor inholding back similar development today.

Competition from abroad is a factor many Marxists (and others)have emphasized in explaining lack of industrial development.Amin developed this argument in more detail, so I will postponediscussion to the next chapter. Competition from abroad can, in anycase, be prevented by protection. State support is therefore thecritical factor. The narrow home market is a result of the generallylow level of output and income. Baran did not put forward anunder-consumptionist argument here; it is the low general level ofdevelopment that is to blame. His argument is slightly odd though.‘Under such circumstances there could be no spreading of smallindustrial shops that marked elsewhere the transition from themerchant phase of capitalism to its industrial phase’ (PEG: 314). Anarrow market can hardly prevent the spread of small-scaleproduction. The real importance of narrow markets, to Baran, wasthat larger-scale production leads to an early development ofmonopoly, the real villain of the piece throughout.

Completing swiftly the entire journey from a progressive to aregressive role in the economic system, they [industrial firms]

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became at an early stage barriers to economic developmentrather similar in their effect to the semifeudal landownershipprevailing in underdeveloped countries. . . . Monopolisticindustry on the one hand extends the merchant phase ofcapitalism by obstructing the transition of capital and men fromthe sphere of circulation to the sphere of industrial production.On the other hand, providing neither a market for agriculturalproduce nor outlets for agricultural surplus labour and notsupplying agriculture with cheap manufactured consumergoods and implements, it forces agriculture back towards selfsufficiency, perpetuates the idleness of the structurallyunemployed and fosters further mushrooming of petty traders,cottage industries and the like. (PEG: 315-16)

I have already described Baran’s argument that monopoly detersinvestment, and its weaknesses. The case he puts forward may bestronger in an underdeveloped country where a large part of totaldemand derives from a rather static and inflexible agriculturalsector, since, as I have argued above, it is the expansion of themarket that must be the main stimulus to development in amonopolistic system.

Foreign firms catering for the domestic market are even morelikely to operate on a large scale and to have a monopoly position.The fact of foreign ownership makes no difference to the stiflingeffect of monopoly on investment. They are additionally chargedwith sending surplus abroad and with importing many of the thingsthey buy. Neither charge is very convincing (Szymanski calculatedthat there has been a net flow of wealth from the advanced to theunderdeveloped countries; 1981, ch. 9). Foreign firms wouldpresumably re-invest profits locally if it were profitable to do so,and would buy goods locally if they were cheaper or better. Moreimportant is the political backing they can get from their homecountries, and the fact that by displacing local firms they retard thegrowth of a national bourgeoisie.

There are also firms producing for export, mainly producingprimary commodities and mainly foreign-owned. Baran claimedthat they typically pay out only a small part of their revenue inwages, that the surplus is correspondingly high and ispredominantly taken out of the country. There is thus little stimulus


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to consumer demand (which might stimulate investment) nor isthere a large contribution to the local investible surplus. I willreserve the main discussion of these questions for later chapters;again Baran is the source of ideas that have been developed further.Since Baran’s time, manufactured exports from newlyindustrializing countries have boomed, a development he did notforesee.

The political structure of underdeveloped countries is shaped,first, by the enormous weight of foreign capital, because of itseconomic and political power within the country and its ability tocall on the support of its home country. Foreign capital is opposedto economic development, Baran claimed, because it wouldthreaten cheap supplies of labour, and because it would involvehigher taxes and a diversion of state support to the promotion ofinternal development to the detriment of the ‘needs’ of the exportsector for specialized infrastructure. Second, there is a powerfulbloc of mercantile interests attached to foreign capital: enterprisesacting as suppliers, agents, and subcontractors, as well as those whohandle import and export business. These Baran calls the‘comprador’ bourgeoisie. In representing their own interests, theyrepresent, to a large extent, the interests of foreign capital as well.Third, there are feudal or semi-feudal landed interests, who havetheir own reasons for opposing any disturbance in the status quo,and for lining up with foreign capital. Finally, industrial capital,although it has a relatively small weight in the economy, isconcentrated into a few powerful monopolies which oppose anydevelopments which threaten their position. These are not the onlyclass forces: workers, peasants and intellectuals have their owninterests, opposed to those of the ruling oligarchy, and must berepresented or somehow bought off (or both), while a progressiveindustrial bourgeoisie, though weak, may exist.

It is clear that there are many possible alignments that could arisefrom this complex web of classes and class fractions, and Baran’simportance in the development of the political analysis ofunderdeveloped countries, as in other aspects of his writing, islargely in the possible lines of analysis suggested by his work. Hisown stress was mainly on the role of foreign capital, and theimperialist states that lie behind it, in stifling development. Thismakes sense, since if we take away the element of foreign dominance

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we are left with very much the same classes and fractions as werecontending for power in the advanced countries at an early stage intheir development. We may doubt Baran’s presumption thatmercantile and feudal classes must be uniformly hostile todevelopment; they were not always so in the countries wherecapitalism first emerged.

Baran discussed three different kinds of government inunderdeveloped countries, which he called colonialadministrations, comprador regimes and ‘New Deal’ governments.This division looks less relevant now that decolonization has almosteliminated formal colonial rule. Colonial territories are, of course,directly dominated by foreign capital, interested in naturalresources, cheap labour, and cheap government. Compradorgovernments were described by Baran as little different fromcolonial regimes. The job of government is farmed out to localinterests that can be relied on to support their paymasters (or bethrown out if they give trouble), so privileged sections of the localpopulation get hold of substantial chunks of surplus which theysquander ostentatiously. He cited oil sheikhs as examples (this wasbefore OPEC, of course).

‘New Deal’ governments are more interesting. Baran described,without very deep analysis, the formation of a popular coalition todemand independence. At the time he was writing, only a fewcolonial territories had achieved formal independence, and theywere at an early stage in their development. He did not wholly ruleout the possibility that some of these countries might achievegenuinely independent economic development on the lines ofJapan, but he foresaw enormous difficulties. The central point isthat it is not only foreign capital which is threatened by economicdevelopment. There are powerful interests within the countrywhich also have much to fear. Once independence is attained, thenationalist movement splits into a right and a left wing, and theoutcome depends on the precise balance of forces. If popularpressures for reform are strong, Baran argues, there is likely to be toa rapid reconciliation between reactionary local interests andforeign capital; independence will become a sham and the pretenceof democracy will be abandoned. It is not difficult to think ofexamples. The prospects for capitalist development are better


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where the working class is weak and the industrial bourgeoisierelatively strong.

Although capitalist development was not impossible, Baranthought it unlikely, and expected it at best to be slower than thepotential surplus makes technically possible. The only sure road todevelopment is by the adoption of socialist planning. He advocateda Soviet model of development with the surplus in agriculture usedto develop heavy industry first and consumer goods industriesafterwards.

Since Baran made a clear prediction that monopoly capitalismwill lead to slow growth in both advanced and underdevelopedareas, one might try to test this prediction against the facts. It doesnot fare well. In almost every country in the world, total output hasgrown more rapidly since the Second World War than in anyprevious epoch. Industry has grown more rapidly inunderdeveloped than in developed countries (Warren 1973, 1980).Per capita output in underdeveloped countries, especially in theagricultural sector, has, it is true, grown more slowly than mighthave been hoped, but even here it is doubtful whether any previousperiod has a better record. It might be argued that Baran wascomparing monopoly capitalism with socialism, which would havedone even better, but this is not my reading of him. In any case,socialist countries do not have an impressive record. The prospectsfor capitalist development will be discussed further in chapter 11.

7.6 SUMMARY

Baran argued that monopoly leads to a diversion of the surplus ofoutput over necessary consumption away from productiveinvestment towards wasteful uses. It is thus a cause of stagnation inboth advanced and underdeveloped countries (an argument that istheoretically weak and conflicts with the facts). Underdevelopedcountries are dominated by foreign capital with its local hangers-on, and by mercantile and landlord interests. All are hostile todevelopment. He directed Marxists’ attention to the analysis ofunderdeveloped countries, and provided many of the ideas built onby subsequent writers.

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8

Dependency Theories

Andre Gunder Frank’s most influential book, Capitalism andUnderdevelopment in Latin America (Frank 1979a, cited below asCULA), starts with a sentence which sums up his positionadmirably:

I believe, with Paul Baran, that it is capitalism, both world andnational, which produced underdevelopment in the past andwhich still generates underdevelopment in the present.(CULA: xi)

It is essential to realize how drastic a break with the classicalMarxists this is. Compare it with Marx:

National differences and antagonisms between peoples aredaily more and more vanishing, owing to the development of thebourgeoisie, to freedom of commerce, to the world market, touniformity in the mode of production and in the conditions oflife corresponding thereto. (Marx, Manifesto: 49)

Frank’s claim that capitalism causes underdevelopment ischaracteristic of the dependency theories which dominated Marxist(and radical non-Marxist) thinking on the world economy from thelate 1960s to the late 1970s. These theories see the world capitalistsystem as divided into a centre and a periphery (terminology varies;metropolis and satellite, or core and periphery, are alternatives).The normal processes of the system cause the gap between centreand periphery to widen, as the centre develops at the expense of the


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periphery, while the periphery is reduced to a state of dependence.Imperialism, in the usual sense of political and military dominance,plays a secondary role in dependency theories, which were intendedto explain what was seen as a continued failure of development inthe Third World, in the era of decolonization. In so far asdependency theorists discussed the history of underdevelopment,one can distinguish a strong form of the theory (Europe foundcountries that were developed for the time, and made thamunderdeveloped), and a less common weak form (Europe preventedunderdeveloped countries from developing) (Griffin and Gurley1985). During the 1970s, dependency theory came under increasingfire, and by the 1980s those writers still working in the dependencyframework were visibly on the defensive.

I shall concentrate on a few of the most influential writers in thedependency tradition, primarily Andre Gunder Frank, ImmanuelWallerstein, and Samir Amin, with the emphasis on the workswhich were most discussed and emulated. By contrast with theearlier periods surveyed in this book, a great variety of work in thedependency framework exists, so the discussion has to be selective.This book is about Marxist theories of imperialism, not aboutmodern theories of economic development, and topics fordiscussion have been selected accordingly. Dependency theoryemerged from debates on development economics, and by no meansall of its adherents claimed to be Marxists; were I writing the historyof dependency theory in its own right, I would have more to sayabout writers like Cardoso and Dos Santos.

Frank is sometimes treated as the inventor of dependency theory(Simon and Ruccio 1986), though others could dispute the honourwith him. His work has typically taken the form of essays,subsequently collected and published in book form. The mostimportant collections are Capitalism and Underdevelopment inLatin America (CULA, 1969a, first published in 1967) and LatinAmerica: Underdevelopment or Revolution (LAUR, 1969b).Lumpenbourgeoisie: Lumpendevelopment (LL, 1972) was a replyto his critics, and represents a minor modification and restatementof his position. Dependent Accumulation and Underdevelopment(DAU, 1978) represents a further shift on some issues, and wasinfluenced by other writers, notably Amin. DAU contains ahistorical account of the world economy interspersed with moretheoretical essays. Of Frank’s many subsequent publications, three

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(1981, 1983, 1984) deserve mention. I shall concentrate on theearlier works, since they have become part of the intellectual historyof the period, even where Frank has subsequently changed hisviews. Frank was criticized by Laclau (1971), among others.

Wallerstein’s The Modern World System (MWS, 1974a) is thefirst instalment of a promised four-volume analytical history of thecapitalist world economy, continued in The Modern World SystemII (1980); between them they cover the period from 1450 to 1750.A more accessible introduction to his views is to be found inHistorical Capitalism (1983), and in an article (1974b) which isincluded, with others, in a useful collection, The Capitalist WorldEconomy (CWE, 1979; see also 1984). Wallerstein’s views (andthose of Frank) have been critically analysed by Brenner (1977).

Amin’s major works are Accumulation on a World Scale (1974,cited below as AWS), Unequal Development (1976, cited as UD),and Class and Nation: Historically and in the Present Crisis (1980),which all cover very similar ground. Imperialism and UnequalDevelopment (1977, cited as IUD) is a collection of essays, one ofwhich, ‘The End of a Debate’, sets out Amin’s main ideas veryclearly. He has also written a considerable amount about particularareas, notably North Africa (1966) and West Africa (1971). Addo(1984) contains useful essays by Frank and Wallerstein as well asAmin. Amin has been criticized for eclecticism (Barone 1982; cf.Griffin and Gurley 1985), though it is not clear why that should bea vice.

8.1 FRANK

Frank identified capitalism with a system of (world-wide)exchange, characterized by monopoly and by exploitation. He also(implicitly) argued that any part of the world which is affected inany fundamental way by ‘capitalism’ (exchange) is ‘capitalist’. Hehad little difficulty in showing that the effects of the capitalist worldeconomy have penetrated so deep into Latin America that no partof the continent has been unaffected. Even areas substantiallydevoted to self-sufficient, subsistence farming (such as north-eastBrazil – see CULA: 153-4) are the products of the decay of earlierexport industries, while latifundias (large estates worked by


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peasant cultivators) originated as a response to commercialopportunities even where they have subsequently declined intoalmost self-sufficient isolation.

Incorporation into the world capitalist system leads todevelopment, in some areas, and to the development ofunderdevelopment elsewhere. Underdevelopment, as Frank usesthe word, is not an original state; he coined the nameundevelopment for the state of affairs before capitalist penetration(though neither he nor his followers have used it much, on thegrounds that all vestiges of older forms have long since beenreconstructed by capitalism). The ‘development ofunderdevelopment’ occurs because the world capitalist system ischaracterized by a metropolis–satellite structure. The metropolisexploits the satellite, surplus is concentrated in the metropolis, andthe satellite is cut off from potential investment funds, so its growthis slowed down. More important, the satellite is reduced to a stateof dependence which creates a local ruling class with an interest inperpetuating underdevelopment, a ‘lumpenbourgeoisie’ whichfollows a ‘policy of underdevelopment’ (LL, passim). I shall firstdiscuss Frank’s conception of the structure of the world capitalistsystem, the ‘chain of metropolis–satellite relations’, then thetransfer of surplus from satellite to metropolis and itsconsequences, and finally the economic and political structures thatresult.

Consider first the idea of a chain of metropolis–satellite relations.

The monopoly capitalist structure and the surplusexpropriation/appropriation contradiction run through theentire Chilean economy, past and present. Indeed, it is thisexploitative relation which in chain-like fashion extends thecapitalist link between the capitalist world and nationalmetropolises to the regional centers (part of whose surplus theyappropriate) and from these to local centers and so on to largelandholders or merchants who expropriate surplus from smallpeasants or tenants, and sometimes even from these latter tolandless laborers exploited by them in turn. At each step alongthe way the relatively few capitalists above exercise monopolypower over the many below, expropriating some or all of their

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economic surplus, and to the extent that they are notexpropriated in turn by the still fewer above, appropriating itfor their own use. Thus at each point, the international, nationaland local capitalist system generates economic development forthe few and underdevelopment for the many. (CULA: 7-8.Similar statements may be found throughout Frank’s work, e.g.CULA: 146-8, about Brazil)

This ‘chain’ of metropolis-satellite relations has existed, accordingto Frank, since the sixteenth century; changes since then representonly changes in the forms of dominance and exploitation of thesatellite, not changes of substance. This is the principle of‘continuity in change’ (cf. Addo 1986).

As a description, Frank’s ‘chain of metropolis–satellite relations’is plausible. Relations of dominance and surplus extraction existnot only between the direct producers and their immediateexploiters, but at all levels in the world system. The idea is essentialto Frank, since the ‘chain’ serves both to channel surplus to themetropolis and to create the class interests that sustainunderdevelopment. As an analysis, however, it raises morequestions than it answers. I shall criticize Frank primarily forconflating very different kinds of relations on the basis of purelysuperficial similarities. In particular, I shall argue that merchantcapital and modern monopoly capital are quite different.

The basic idea is of an exchange relationship in which themetropolis has a monopolistic position because each metropolis hasseveral satellites, while each satellite confronts only one metropolis.The concept of monopoly used here is familiar from economicstextbooks: a single seller facing a multitude of small buyers or,conversely, a single buyer facing many sellers. The monopolist canset the terms of exchange, and capture any surplus controlled by theother party. Frank, however, generalized the idea to cover anyexploitative or unequal relationship: ‘the source or form of thismonopoly varies from one case to another’ (CULA: 147). One cansay, for example, that landlords monopolize access to the land,capitalists monopolize the means of production, and so on. But ifone does not distinguish between different forms of monopoly, andin particular between class monopolies and individual monopolies,


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between monopoly control of the means of production andmonopoly in exchange, then the assertion that exploitation is theresult of monopoly becomes an empty tautology.

At the international and inter-regional levels of Frank’shierarchy, there are two distinct kinds of monopoly involved. Thefirst, and the one that fits Frank’s account best, is the monopolisticsystem of merchant capital, established in Latin America followingthe Spanish and Portuguese conquests and dominant into thetwentieth century. Merchants collect products for export and forinter-regional trade, and distribute foreign and urban products.They are usually not involved directly in production; where theyare, their activities in organizing production are secondary.Mercantile monopoly may be associated with either pre-capitalistor (small-scale) capitalist relations of production. The second kindof monopoly, which Frank does not distinguish clearly, is modernmonopoly capital, characterized by large-scale capitalistproduction. In underdeveloped countries, it typically appears in theform of multinational companies, though national monopolies alsoexist. In contrast to merchant capital, modern monopoly capitalexercises direct control over production and normally introducesfully capitalist production relations and the most moderntechnology. To confuse the two is a major mistake. It is true thatsome cases are hard to categorize, for example where multinationalfirms are engaged in buying agricultural products from small-scaleproducers, or where they organize production on a relativelyprimitive technical basis (e.g. plantation agriculture), but theexistence of borderline cases does not invalidate the classification.

At the local levels of the hierarchy, closer to the direct producers,Frank mentions merchants, landlords and (occasionally)capitalists. These must be clearly distinguished from each other.Frank argues that it is often difficult to disentangle theserelationships in practice, but this surely makes it even more essentialto be clear in analysis. I am not arguing that these differentexploitative relations exist independently of each other. In eachdifferent historical period they have interacted and reinforced eachother – this is what gives Frank’s account its descriptiveverisimilitude.

The next major point to note is that Frank identifies an economichierarchy of individuals or classes (the ‘relatively few capitalists

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above’ exploiting ‘the many below’) with a spatial or geographichierarchy (world and national metropolises, regional centres, localcentres). This coincidence of economic and spatial relations ischaracteristic of some, but not all, systems of exploitation.Merchant capital, for example, sometimes creates a geographicalhierarchy, when the output of scattered production units is gatheredin regional centres for export in bulk, or for shipment to urbanmarkets. This is the case that fits Frank’s picture best: the economicand geographical hierarchies coincide.

Modern monopoly capital is often administered through asuperficially similar geographical hierarchy. The head office is in amajor world centre, regional offices or local subsidiaries areestablished in large cities, while productive activities are locatedwherever manpower, markets and raw materials supplies dictate(see Hymer 1972; Chandler and Redlich 1961). This hierarchy ofadministration is not in any real sense a ‘chain of metropolis–satellite relations’. The intermediate levels of management are nomore than agents of the corporation, with no independenteconomic base. There is a direct wage relation between the workersand the corporation as a unit of capital. Another kind of hierarchyis created by the existence of subcontractors and the like,subordinate to the large corporations. This was discussed byHilferding and is still important (Friedman 1977). As withmerchant capital, it involves exchange relations, but the unitsinvolved are producing units, and are often located within a singleurban area. All of these hierarchical structures differ fromcompetitive capitalism, which is characterized by a ‘chain’ withonly one link: the relation between workers and capitalists.

There are superficial similarities between Frank’s ‘chain’ (andalso Wallerstein’s core–periphery relation) and the classical Marxisttheories of imperialism. Lenin said that finance capital ‘spreads itsnet’ over the world, and Bukharin wrote of a ‘few consolidated,organised economic bodies’ confronting an agrarian periphery.However, for Bukharin and Lenin, this was part of a process ofinternationalization that was transforming the world system byconcentrating power and wealth at the centre, but simultaneouslydeveloping production and creating a true proletariat in theperiphery. Where Frank and Wallerstein saw an essentially staticsystem of redistribution persisting for centuries, the classical


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Marxists saw a process of development that was transforming theworld. The essential difference between these views is to be foundin the classical Marxist emphasis on the relations of production.Frank is only able to argue that the ‘chain’ has remained essentiallyunchanged by ignoring the real changes in the relations ofproduction which followed the displacement of merchant capital bymodern monopoly capital.

The ‘chain of metropolis–satellite relations’ is, according toFrank, the cause of the ‘development of underdevelopment’. Thislatter phrase is not very clearly defined, but part of its meaningseems to be a quantitative retardation in the growth of output,employment and productivity. (The other aspect of its meaning is aqualitative deformation of the system.) I now turn to the argument(used, in rather different forms, by Baran, Frank, Wallerstein andothers) that the transfer of surplus from the satellite to themetropolis leads to a retardation of development in the satellite.

First, consider the concept of surplus. Frank referred to Baran’sdefinitions (chapter 7 above), but there are additional difficulties inusing this definition in Frank’s framework. Baran defined surplus asthe difference between output (actual or potential) andconsumption (actual or necessary). For a self-sufficient producingunit, the surplus is simply the physical excess of what is producedover what is consumed.

Frank, however, was explicitly concerned with production unitsthat are not self-sufficient, but are involved in a network ofexchange relations. In this case, the goods that are consumed are notproduced within the unit concerned, so production andconsumption must be valued in comparable units before thedifference between them can be calculated. The problem ofvaluation was a major preoccupation of the English classicaleconomists; Marx tackled it by using labour values. Neither Franknor Baran suggested any solution. It is not a mere technicality; toargue that there is exploitation in exchange, it is necessary tocompare the prices that are actually paid with some reference set of‘correct’ prices. At the prices actually paid, obviously, producers getthe ‘value’ of what they sell. I know of no simple or universalsolution to this problem, which greatly reduces the usefulness of theconcept of surplus. Labour values make sense only in a relativelyhomogeneous system, in which competition leads to a certain

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uniformity in levels of technique by eliminating inefficientproducers. This is the context implied by Marx in his discussion ofvalue. As Frank himself insisted, the world economy is not now, andhas never been, homogeneous in this sort of way, so the concept ofsurplus can only be used in a rather loose and qualitative fashion.

If we accept a concept of surplus, we must still ask: what are theeffects of a transfer of surplus from satellite to metropolis? HereFrank’s conflation of the economic and geographical dimensions ofexploitation adds powerfully to the confusion. To say that oneregion extracts surplus from another suggests strongly that somephysical goods are being seized from one place and shifted toanother. Within a system of exchange, however, what is happeningis that an exchange of goods of unequal value (in some sense) istaking place, and that control over the use of certain sums of valueis being transferred from individuals (or groups) who live in oneplace to individuals (or groups, or corporate bodies) who live (orhave their head offices) in another. Without analysis of the use of thesurplus, this tells us nothing about the geographical location of newinvestment. The whole point of Baran’s concept of surplus is thatsurplus represents potential investment and hence economicgrowth.

As a starting point, consider what determines the geographicalpattern of investment in a fully developed (ideal) capitalist system.Here, investment will be directed into the activities that yield thehighest profits (this is what leads to the formation of a general rateof profit, see Marx, Capital, III, ch. 10). In geographical terms,investment will be located where costs are lowest (allowing fortransport costs), and thus, other things being equal, investment willgo to low wage areas, i.e. underdeveloped areas. I do not argue thatthese ideal conditions have ever existed, nor that an allocation ofinvestment according to profitability would be desirable. The realpoint is that the geographical pattern of investment need notcorrespond at all to the geographical location of the owners of thesurplus. If anything, the super-exploitation of underdevelopedcountries should mean more rapid development, as the classicalMarxists expected. A large part of Frank’s argument is thereforemisdirected; the transfer of surplus from satellite to metropoliscannot in itself explain the lack of development in the satellite. The


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pattern of development depends on the factors that govern the useof the surplus.

Part of Frank’s answer to this criticism would no doubt be to referto his discussion of the distortion of the satellite’s economy as aresult of economic dependence, to be discussed below. He could alsoargue that the structure of the chain of metropolis–satellite relationsimpedes the return flow of investment from metropolis to satellite.Here, the distinctions between merchant capital and modernmonopoly capital are relevant.

In the case of a mercantile hierarchy, there are very real barriersto the productive use of the surplus in the satellite. The productionunits are separate from the capitalist enterprises that exploit them.If mercantile profit is ploughed back into the expansion of themercantile enterprise itself, this does nothing to expand actualproduction. Where production is in the hands of pre-capitalistproducers, there may be no way in which investment funds could bechannelled into production, at least without transforming the socialrelations of production, a task which merchant capital may haveneither the means nor the desire to undertake. Where production isorganized in small capitalist firms or in pre-capitalist units whichcan absorb money capital productively (for example, slaveplantations), the problem is that investment funds will not beforthcoming unless production is profitable, and production is notprofitable if the potential profits are being creamed off bymercantile middlemen.

In the case of modern monopoly capital, especially in the form ofmultinational companies, the case is different. It has been argued bymany commentators (e.g. Hymer 1972; Adam 1975) thatmultinational companies look over the whole world to select sitesfor investment, potentially profitable markets, and so on. Theyhave no special reason to concentrate investment in their homecountries, indeed they are multinational precisely because they havenot done so in the past. The investment decisions of multinationalcompanies should approximate more closely to the ‘pure’ capitalistpattern than those of any preceding form of capital.

Frank cited evidence showing that the outflow of profit fromLatin America to the USA in various forms greatly exceeds thereturn flow of investment funds from the USA. This is not reallysurprising, since it is generally true that only a small part of profit is

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reinvested, whether the profits are generated in advanced orunderdeveloped countries, by local or foreign capitalists. In all thesecases, a large fraction of profit is consumed. This may be anindictment of capitalism, but not particularly of foreign capital.Baran argued that monopoly capital is particularly prone to wastethe surplus. I have criticized this view, and in any case it is a chargedirected against monopoly capital in general, not foreign ormultinational corporations as such. The relevant question iswhether multinational companies reinvest less than locally ownedcapitalist enterprises. In Frank’s treatment of foreign firms,nationalist rhetoric often supplants sober analysis.

My conclusion, then, is that the transfer of (control over) surplusto the metropolis is not, in itself, an explanation for lack ofdevelopment in the satellite, which must be explained by looking atthe uses of surplus. Of course, the fact that surplus is in differenthands may be relevant to determining its use, but it is not the onlyfactor. In particular, the relations of production and of exchange arecrucial factors. Where production is in the hands of multinationalcorporations, the scope for productive use of surplus is far greaterthan it is where production is pre-capitalist and surplus is capturedby merchant capital. In all cases, however, the incentives andopportunities provided by the economic environment are criticallyimportant.

The transfer of surplus is not the only cause of the ‘developmentof underdevelopment’; Frank also claimed that participation as asatellite in the capitalist world system leads to a distorted anddependent economic structure. This idea was developedindependently by a number of writers, and led to them becomingknown as the dependency school. The point is that even anationalist government cannot succeed in promoting capitalistdevelopment because of the constraints imposed by theinternational environment.

Dos Santos (1970) defined dependence as follows:

By dependence we mean a situation in which the economy ofcertain countries is conditioned by the development andexpansion of another economy to which the former is subjected.The relation of interdependence . . . assumes the form of


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dependence when some countries (the dominant ones) canexpand and be self sustaining, while other countries (thedependent ones) can do this only as a reflection of thatexpansion.

The story runs as follows: underdeveloped countries produce anarrow range of staple raw materials for export (this is the result ofearlier stages of development). Incomes are very unequal and muchof the surplus flows out of the country, so the mass market forconsumer goods is limited. ‘Import substituting’ industrializationinvolves capital-intensive techniques, so employment is low, as arewages, leaving a large part of the population ‘marginalized’, eitherunemployed or in low productivity traditional activities. (Theconcept of ‘marginalization’ has much in common with dualistictheories, except that here it is the lack of dynamism of the modernsector that excludes people, forcing them back into lowproductivity activities, where theories of dualism originally saw themodern sector as held back by the traditional sector.) The marketremains narrow, further constricting development. Furtado (1973)suggested a further factor: consumption patterns among the eliteare copied from those of more advanced countries, and the result isto bias demand towards imports or towards goods produced bycapital-intensive methods, reinforcing the problem. Modernproduction methods require imported capital goods, importedcomponents and materials, while multinational companies remitprofits abroad (openly or by devious means). The balance ofpayments is therefore a constant problem, halting growth, andcompelling the retention of traditional export industries as foreignexchange earners.

Consider, first, the problem of narrow markets. There are twoissues: the absolute size of the market and its rate of growth. A smallmarket limits the opportunities for use of modern large-scaletechniques; there is no doubt that small underdeveloped countriesare at a disadvantage here, though larger underdeveloped countries(Brazil, India, etc.) are not. Production for the (potentially almostunlimited) export market can overcome both this problem and theproblem of a slowly growing market. Relatively slow growth in themarket for consumer goods is the result not of a high rate of

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exploitation, but of a rising rate of exploitation. Correspondingly,the market for means of production could expand relatively rapidly.This is the standard argument against under consumptionism, anargument Frank accepted (DAU, chapter 5). It is argued, however,that means of production are predominantly imported, so thegrowth of local industry is limited by the slow growth of the marketfor consumer goods. The case thus hinges on assumptions about thepattern of international specialization. Exports (which generateincome, and hence demand) are assumed to be confined totraditional exports. Production for the local market is assumed tobe limited to consumer goods. An explanation of the pattern ofspecialization is needed to give these arguments a solid foundation.

What of the balance of payments? Suppose a country exports alimited range of traditional staples, and cannot easily expand itsexports. Growth in export earnings is limited, so import growthmust be limited too (since imports must, in the end, be paid for byexports). If imports, say of capital equipment or materials, areessential for growth, the growth of the whole economy can belimited by the balance of payments constraint. The argument isfamiliar to development economists (it is a form of ‘structuralism’;see Little 1982), and is perfectly coherent. The problem is that it,like the ‘narrow markets’ argument, rests on the assumption thatnothing can be done about the pattern of specialization; indeed, it isjust a variant of the ‘narrow markets’ argument, for the special casein which export markets are narrow.

What is needed to add some substance to these arguments is someexplanation of why a country should be so limited in the range ofgoods it can produce and export. All the evidence is that many ThirdWorld countries have, in fact, widened the range of goods theyproduce, either to replace imports of manufactures (this is called‘import substituting industrialization’ in the jargon) or byexporting manufactures themselves (‘export-orientedindustrialization’). Some countries which shifted to exportingmanufactures became net importers of primary productsthemselves, creating markets for exporters of primary products.The benefits have not been evenly spread, of course, but what isneeded is an explanation of why some countries have succededwhile others, as yet, have not. To deny the possibility of somethingwhich is visibly happening is not very helpful.


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Finally, Frank stressed the political consequences of dependency.The ruling classes in underdeveloped countries owe their positionto their place in a ‘chain’ that runs from the countryside to theimperialist metropolis, and thus have an interest in maintaining it.

This colonial and class structure establishes very well definedclass interests for the dominant sector of the bourgeoisie. Usinggovernment cabinets and other instruments of the state, thebourgeoisie produces a policy of underdevelopment in theeconomic, social and political life of the ‘nation’ and the peopleof Latin America. (LL: 13)

This part of Frank’s argument is at its best in his historicalanalysis of a crucial turning point in Latin American history, theperiod after independence in the nineteenth century. At this timethere was a bitter conflict between the ‘Europeans’, the advocatesof free trade, and the ‘Americans’, the advocates of protection fordomestic industries. The ‘Europeans’ were led by merchants whohandled the export and import trades and by agricultural exportinterests, and they were the stronger party precisely because thepreceding centuries of dependence had created an economydominated by the groups that stood to gain from continuation ofthe system. Free trade made imported manufactured goodsavailable cheaply to the export agriculturalists, and the weakness ofthe local currency increased the value of exported products in termsof the depreciated currency, transferring income to those who soldgoods for export. Local manufacturing industry was unable tocompete with imports without protection, so perpetuating theimbalance (LL: 61). State policy was geared to the needs of theexport sector in other ways as well: taxes, distribution of land,immigration policy, ports, railways, and so on. Frank summarizes:‘the “European” lumpenbourgeoisie built “national” lumpenstateswhich never achieved real independence but were, and are, simplyeffective instruments of the lumpenbourgeoisie’s policy oflumpendevelopment’ (LL: 58).

By contrast, the United States did not offer suitable conditions forexport agriculture except in the south.

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Consequently, the class structure which developed there, basedat the start on small farmers, did not present any obstacle to adevelopment policy which permitted the Northern bourgeoisieto become strong enough to use independence to promoteintegrated development, to defeat the planter/exporters of theSouth in the Civil War, to impose a policy of industrialisationand arrive at their own industrial ‘take-off’ point. (LL: 58-9)

Frank was surely right to argue that state policy is a criticalelement in economic development, that state policy is the outcomeof conflict between classes and fractions of classes with conflictinginterests, and that classes and fractions which benefit from anexisting economic structure have an interest in perpetuating it andare in a strong position to succeed. However, his political analysiswas radically impoverished by the presumption that internationaltrade is bad for development, and self-sufficiency good, so classesand fractions were classified by whether they were for or againsttrade. The issues in development policy are far too complex to becaptured by this simple opposition. In any case, the idea that statepolicy since the Second World War has been hostile to industrialdevelopment is simply ridiculous. In the majority of Third Worldcountries, levels of industrial protection have been very high(absurdly high in some cases), and state investment has been pouredinto infrastructure and ‘heavy’ industries. It can be argued thatsome countries, at least, have lost out by neglecting agriculture andprimary production, not the reverse. The interesting question is:how did industrial capital succeed in enlisting such wholeheartedstate support, when it was, to begin with, so weak? This, and relatedissues, will be taken up in chapters 10 and 11.

A final comment: Frank’s arguments were presented in adistinctive way, which seems to me to be an important source ofweakness. His normal procedure was to make brief, sloganisticassertions, and then to justify and expand on them by giving a seriesof historical examples, frequently quoting at length from otherwriters or from original sources. The problem with this style ofargument is that it leaves no room for systematic theoreticalexposition; one is left repeatedly saying: yes, it happened like that inthose cases, but why, and must it be the same everywhere? In


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addition, crucial terms (development, underdevelopment,metropolis, satellite, capitalism, and so on) are never explicitlydefined. The reader is left to infer their meaning from the essentiallydescriptive uses they are put to. They often have a spectrum ofmeanings rather than a single precisely defined sense, blurring thelogic of some of his most important assertions.

8.2 WALLERSTEIN

I shall summarize Wallerstein’s arguments briefly, since they have agreat deal in common with those of Frank. He insisted that anysocial system must be seen as a totality. Nation states, in the modernworld, are not closed systems and cannot be treated as if they were.

We take the defining characteristic of a social system to be theexistence within it of a division of labour, such that the varioussectors or areas within are dependent upon economic exchangewith others for the smooth and continuous provisioning of theneeds of the area. (CWE: 5)

The only kinds of social system that have existed are‘minisystems’ (closed local economies), ‘world empires’ (defined bythe extraction of tribute by a central authority) and ‘worldeconomies’ (formed by a market exchange). A ‘world’ system doesnot necessarily have to cover the whole globe; it is a ‘unit with asingle division of labour and multiple cultural systems’. A worldeconomy, then, is a world system without a single central authority.The modern world system is capitalist, since it is a world economy(as defined).

Capitalism and a world economy (that is, a single division oflabour but multiple polities) are obverse sides of the same coin.One does not cause the other. We are merely defining the sameindivisible phenomenon by different characteristics. (CWE: 6)

The capitalist world system is divided into three tiers of states,those of the core, the semi-periphery and the periphery. The

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essential difference between them is in the strength of the statemachine in different areas, leading to transfers of surplus from theperiphery to the core, which further strengthen the state machinesin the core. State power is the central mechanism since ‘actors in themarket’ attempt to ‘avoid the normal operation of the marketwhenever it does not maximise their profit’ by using the state to alterthe terms of trade. The link with imperialism in the traditionalsense, the dominance of one state over others, is obvious.

At least in origin, the core–periphery division is explainedthrough a sort of technological determinism. Western Europespecialized in manufacture and animal raising, activities whichrequire relatively high skills, and are better carried out by relativelywell-paid free wage labour. The resulting social structure is thefoundation of relatively strong ‘core’ states, able to manipulatemarkets to their advantage. Hispanic America (mining) and Balticeast Europe (grain) specialized in activities requiring relatively littleskill, hence capitalists chose (through state intervention) forms ofcoerced labour, and a difference of interests emerged betweenmanufacturing and primary product export interests. Local stateswere weak, and readily subjugated by the core, so these areasbecame ‘peripheral’.

Once in existence, the core–periphery division is maintained bythe ability of the core states to manipulate the workings of thesystem as a whole to suit their needs. They deliberately weakenperipheral states or eliminate them altogether by conquest, and alsoalter the workings of markets by imposing monopolisticrestrictions, protecting their own industries, forbiddingcorresponding protection in the periphery, and so on.

The ‘semi-periphery’ is a sort of labour aristocracy of states orgeographical areas. Without it, a world system becomes polarizedand liable to revolt, while an intermediate tier diffuses antagonisms.This argument is hard to accept as an explanation of the existenceof a semi-periphery. Was the creation of a semi-peripherydeliberate? The particular cases Wallerstein cites (Italy in thesixteenth century, Russia later, including the USSR) do not seem tohave been deliberately created by the core states. In any case, if thecore is divided into distinct national states (by definition), who isthere to oversee the interests of the system as a whole? The notionof a semi-periphery is rather convenient for the theory because itprovides, so to speak, a site for change. New core states can emerge


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from the semi-periphery, and declining core states can sink into it.On the other hand, the notion of a semi- periphery can easilybecome an excuse for ad hoc explanations; core states are expectedto succeed, so any core state that does badly can be redescribed assemi-peripheral, and so on. There is a risk of leaving the theory withno substance at all.

At this stage, one might well ask what has happened to relationsof production and to classes in the ordinary Marxist sense.Wallerstein seems to count anybody who produces for profit in themarket as a capitalist. Labour-power is indeed a commodity but‘wage labor is only one of the modes in which labor is recruited andcompensated in the labour market. Slavery, coerced cash-cropproduction, sharecropping and tenancy are all alternative modes’(CWE: 17). Marx’s concept of capitalism in terms of a relationbetween free labour and capital is ruthlessly ditched. ‘Classanalysis’ amounts, in Wallerstein’s view, to the analysis of theinterests of ‘syndical groups’ within particular states, and islegitimate provided we look at the ‘structural position and interestsin the world economy’ of these groups. At the same time, classeshave no permanent reality and are no more fundamental than‘ethnonations’. That, at least, is my interpretation of some morethan usually opaque passages in Wallerstein’s writings. (See CWE:24, 224-6.) The central point, which has been the subject of muchdebate, is that ‘modes of labour control’ (wage labour, slavery, etc.)are secondary results of the functioning of a world system definedby the existence of market links. The situation in the core is suchthat free wage labour tends to be chosen (by the ruling class, withstate support) while in the periphery more coercive systems areused.

Overall, Wallerstein’s primary assertion is that a world systemmust be analysed as a whole. Few are likely to disagree. Beyond this,I find little more than a series of definitions and phrases, with a massof detailed historical material that often seems to have littleconnection with his overall generalizations. What is lacking is alevel of theory that would connect the two, by specifying exactlyhow, and under what conditions, the structure produces the resultshe claimed for it.

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8.3 LACLAU’S CRITIQUE

Both Frank and Wallerstein defined capitalism as a system ofexchange relations. They did so, quite deliberately, to includerelations of exploitation such as those between landlords andpeasants, which do not involve wage labour in the strict sense. Thisapproach has been criticized by a number of Marxist writers.Laclau, in an article which has been the starting point for muchdebate (1971, reprinted in Laclau 1977), stated his essential pointas follows:

Of course, Frank is at liberty to abstract a mass of historicalfeatures and build a model on this basis. He can even, if hewishes, give the resulting entity the name of capitalism. . . . Butwhat is wholly unacceptable is the fact that Frank claims that hisconception is the Marxist concept of capitalism. Because forMarx – as is obvious to anyone who has even a superficialacquaintance with his works – capitalism was a mode ofproduction. The fundamental economic relationship ofcapitalism is constituted by the free laborer’s sale of his labour-power, whose necessary precondition is the loss by the directproducer of ownership of the means of production. (Laclau1977: 23)

Marx regarded exchange, and the development of merchantcapital, as perfectly consistent with the persistence of pre-capitalistmodes of production. I have already described this aspect of Marx’sanalysis.

Laclau distinguished between ‘modes of production’ and‘economic systems’. A mode of production is ‘an integratedcomplex of social productive forces and relations linked to adeterminate type of ownership of the means of production’ (1977:34). The feudal and capitalist modes are the only two that arerelevant:

The feudal mode of production is one in which the productiveprocess operates according to the following pattern: 1. theeconomic surplus is produced by a labour force subject to extra-economic compulsion; 2. the economic surplus is privately


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appropriated by someone other than the direct producers; 3.property in the means of production remains in the hands of thedirect producer. In the capitalist mode of production, theeconomic surplus is also subject to private appropriation, but asdistinct from feudalism, ownership of the means of productionis severed from ownership of labour power. (Laclau 1977: 35)

An ‘economic system’ consists of ‘the mutual relations betweenthe different sectors of the economy, or between differentproduction units, whether on a regional, national or world scale’(1977: 35), so ‘an economic system can include, as constitutiveelements, different modes of production.’ (Similar ideas weredeveloped by a number of writers in the 1970s, and will be discussedfurther in chapter 10; Laclau’s version is discussed here, because itwas presented as a critique of Frank and Wallerstein.) According toLaclau, Feudal production for exchange is not ruled out, so Frank’sevidence that supposedly feudal areas of Latin America have beendeeply influenced by exchange becomes irrelevant, and ‘to affirmthe feudal character of the relations of production in the agrariansector does not necessarily involve maintaining a dualist thesis’(1977: 32).

Wallerstein responded: The substantive issue, in my view,concerns the appropriate unit of analysis for the purpose ofcomparison. . . . Sweezy and Frank better follow the spirit of Marxif not his letter’ (CWE: 9). The essence of his reply is that the systemmust be viewed as a totality, and that the only totality that actuallyexists is the world economy. This brings out the key point very well.Both Frank and Wallerstein were looking for descriptivegeneralizations, based directly on the observed facts. Marx, bycontrast, insisted on the necessity of abstraction. The capitalistmode of production was not, for Marx, a directly observableempirical thing (like the capitalist world economy); it was instead aconceptual object, the product of thought. The aim is to pick out keyrelationships and examine them in isolation before elaborating theanalysis to deal with the complexities of the real world.Wallerstein’s reply, therefore, misses its target, since Marx was notlooking for a totality that really exists.

However, an appeal to the authority of Marx only settles the issuefor dogmatists (cf. Foster-Carter 1979). Marx did indeed define amode of production in terms of relations of production, but it

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remains to be shown that this approach gives better results inexplaining reality than any other. I have argued that majorweaknesses in Frank’s analysis follow directly from his neglect ofrelations of production. If this is accepted, then it strengthensLaclau’s case. On the other hand, Laclau’s own explanation ofunderdevelopment and of the persistence of pre-capitalist modes ismost unconvincing.

Laclau wrote ‘[Frank] shows us how the advanced countries haveexploited the peripheral countries; what he at no time explains iswhy certain nations needed the underdevelopment of other nationsfor their own process of development’ (Laclau 1977: 35-6). Andagain: ‘if we want to show that . . . development generatesunderdevelopment, what we have to prove is that the maintenanceof pre-capitalist relations of production in the peripheral areas is aninherent condition of the process of accumulation in the centralcountries’ (Laclau 1977: 37).

There is a clear logical fallacy here. Laclau claims that ifdevelopment requires underdevelopment, then underdevelopmentwill happen, but not otherwise. This is the crudest kind offunctionalism; whatever is necessary for capitalism will happen. Itcannot be sustained. If underdevelopment were necessary fordevelopment, it might still fail to happen, either because owners ofmetropolitan capital, not having understood Marx, fail to realizethe necessity, or because they lack the means to enforce their wishes.On the other hand, underdevelopment might not be necessary, butcould happen all the same, just as an innocent bystander might bekilled in a shoot-out without his death being necessary to anybody.Then again, underdevelopment might contribute to developmentwithout being necessary to it, it could be the jam on the bread. Istress this point, perhaps too heavily, because this logical fallacy isall too common in Marxist writings. Laclau tried to show thenecessity of underdevelopment to development through the theoryof the falling rate of profit, which I have already criticized (chapter2). The organic composition of capital, he claimed, rises in theadvanced countries, bringing down the rate of profit, which mustbe offset by expansion into areas where the organic composition islow. Even if true, however, this would not explain the persistence ofpre-capitalist modes; rather, one would expect investment inunderdeveloped areas to lead to the replacement of pre-capitalistmodes by capitalism (as Lenin, for example, expected).


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Brenner (1977) developed Laclau’s critical points and added avery thorough critique of Wallerstein, while advancing quitedifferent positive arguments. His central point is that capitalism isunique, above all, for the way in which it promotes technologicaldevelopment, increased productivity and hence increased profits(through relative surplus value). This tendency to develop the forcesof production is one of Marx’s main conclusions. Brenner showedthat other modes of production (‘modes of labour control’ inWallerstein’s terms) do not have the same dynamic. Equally, ‘modesof labour control’ are not freely chosen by ruling classes. They arethe result of class struggle.

Different parts of the world economy, therefore, have their owntendencies that derive from the modes of production installed there.This does not mean that they evolve independently of each other,but that analysis should start from the workings of distinct modesof production, and then go on to analyse how they interact witheach other. This line of argument will be developed further inchapter 10. Note, incidentally, that if increasing productivity is theessence of capitalist development, the prosperity of the ‘core’, or the‘metropolis’, does not have to be at the expense of anybody else;development is not necessarily the ‘other side of the coin’ ofunderdevelopment (which is not to deny that international flows ofsurplus can and do take place). This is not a new idea; it is areassertion of the classical Marxist perspective.

8.4 AMIN

Amin’s guiding vision is summed up by the titles of his two mainworks: Accumulation on a World Scale and Unequal Development.The process of accumulation, of development, must be analysed asa single process on a world scale, but it takes place in a world dividedinto many distinct national social formations, containing differentmodes of production. Accumulation does not tend to createuniformity between these social formations, but divides them intotwo categories: those of the centre and those of the periphery.Accumulation at the centre is autocentric (self-centred); it isgoverned by its own internal dynamic, as analysed by Marx. In the

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periphery, by contrast, accumulation is dependent or extroverted,constrained by the centre–periphery relation.

At the heart of Amin’s analysis, as I read it, is an explanation ofunequal specialization, to be discussed in detail below. Put verysimply, he argues that the pattern of international specialization isdetermined by absolute cost levels (not by comparative advantage,as Ricardo thought), and that cost levels depend on productivityand on wages. The countries of the centre developed capitalismearlier, or under especially favourable conditions, and got a hugelead in productivity during a period in which wages were held downto something close to physical subsistence levels in both centre andperiphery. This established a pattern of unequal specialization.Later, wages started to rise at the centre, but the centre’s lead inproductivity remained enough to ensure lower costs at least in mostsectors of industry. Unequal specialization is thus both cause andconsequence of unequal development; both are anchored in theconditions of production and reflected in exchange relations.

Given this pattern of unequal specialization and development,capitalism at the centre evolved as the classical Marxists predicted,driving out pre-capitalist modes of production, while capitalistdevelopment in the periphery was blocked, since the peripherycould compete only in resource-based activities (minerals, tropicalagriculture), and there could only be limited development orientedto the narrow domestic market. The larger part of the populationwas excluded from the capitalist sector, so pre-capitalist modes ofproduction were not eliminated. This provides an explanation forthe typical structure of underdeveloped countries, ‘peripheralcapitalism’.

After a certain stage of development, wages started to rise at thecentre, while massive unemployment and the persistence of pre-capitalist modes of production held wages down in the periphery.Amin’s explanations of increased wages at the centre are bothobscure and inconsistent; I shall not go into detail here; see Brewer(1980a; 1980b: 250-6). High wages at the centre and low wages inthe periphery lead to unequal exchange, as analysed by Emmanuel(discussed in chapter 9 below). Very briefly, Emmanuel argued thatlow wages in the periphery mean low prices for its products, whilethe products of the high wage centre sell at high prices. Some care isneeded here; according to Amin, the centre has advantages in


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productivity that more than outweigh its higher wages, so onemight expect its prices to be low. However, he argued that althoughthe centre has relatively high productivity in most lines of(industrial) production (thus maintaining unequal specializationdespite the wage gap), the periphery has relatively high productivityin the few lines of production in which it specializes. In its exportindustries, therefore, the periphery combines high productivitywith low wages, the recipe, given international equalization ofprofits, for unequal exchange.

Amin criticized Emmanuel for treating wages as an ‘independentvariable’, without adequately explaining them. In Amin’s words:‘Which is cause and which effect: the international prices, or theinequality in wage levels? The question is pointless. Inequality inwages, due to historical reasons (the difference between socialformations) constitutes the basis of a specialisation and a system ofinternational prices that perpetuate this inequality’ (UD: 151).There are thus no independent variables, only a self-perpetuatingprocess (see also Amin 1977: 185).

The social formations of the periphery are characterized bydisarticulation between sectors, since most of the industriesproducing means of production are absent. The links betweenindustries producing means of production and consumer goods,analysed by Marx in his schemes of reproduction, exist at the worldlevel but are incomplete within the national economy. Theperiphery is also characterized by unevenness of productivity;export sectors operated by foreign capital on the most modern linescoexist with primitive pre-capitalist sectors. The capitalist mode ofproduction is dominant but does not tend to become exclusive, andthe tertiary sector becomes overexpanded as a result of the patternof demand and the lack of opportunities for investment in industry.These features of peripheral capitalism are not at all characteristicof ‘traditional’ pre-capitalist societies, they are the product of the‘development of underdevelopment’.

How does Amin’s account of the world system fit in with those ofother writers? He took the analysis of international prices fromEmmanuel, adding his own account of unequal specialization tocomplement it. Together these theories amount to the first seriousanalysis of international trade in the Marxist tradition. Other

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writers have, of course, described the destruction of industries in theperiphery by foreign competition (Marx on the destruction ofIndian handloom weaving, etc.), but Amin developed the idea andmade it the centre of his analysis. Unequal specialization provides afoundation for an analysis of peripheral capitalism that has much incommon with Baran and with dependency theories. On the otherhand, Amin analysed social formations in terms of the interactionof different modes of production, like a number of writers discussedin chapter 10. Monopoly, as such, plays very little part in hisanalysis, but the mobility of capital is of central importance.

Amin argued that economic laws of the sort elaborated by Marxin Capital only apply to a pure capitalist system, while capitalism,in fact, coexists in the world system with other modes ofproduction. An ‘economistic’ analysis which deals only withquantitative relations between narrowly economic variables canonly be a subordinate part of the story. Real history can only beunderstood by the analysis of concrete social formations andcannot be reduced to a preordinated succession of modes ofproduction. A major part of his work is therefore devoted tohistorical analysis (UD, chapters 1, 5). I cannot hope to give anadequate account of this aspect of Amin’s writing here, and I willnot try to do so; I will only pick out some points of theoreticalinterest and try to indicate the main outlines. Amin’s discussions ofthe Arab world and of Africa are especially notable for theircombination of wide-ranging knowledge and analytical insight.

He defined five modes of production, of which four are familiar:the primitive-communal, slave owning, simple petty-commodityand capitalist modes. The one that stands out as unusual is:

the ‘tribute-paying’ mode, which adds to a still existing villagecommunity a social and political apparatus for the exploitationof this community through the exaction of tribute; this tribute-paying mode of production is the most widespread form ofprecapitalist classes, and I distinguish between (a) its early and(b) its developed forms such as the ‘feudal’ mode of production,in which the village community loses its dominium eminensover the soil to the feudal lords. (UD: 13)


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The ‘tribute-paying’ mode is clearly an old friend, the Asiatic mode,under another name. It covers a spectrum of social structures, fromAfrican societies little removed from the primitive-communalmode, though the great Asiatic cultures, to feudal Europe. The all-inclusive nature of this concept rather reduces its usefulness, thoughit has to be said that this is an area in which it is hard to make anyvery firm distinctions.

Pre-capitalist societies can incorporate several modes ofproduction and, as a result, a very complex class structure. Aformation dominated by the tribute-paying mode may containcommodity production and exchange, though the pure form of thetribute-paying mode does not. Different social formations interact,for example by trade, which can form the basis for societies livingon a surplus produced elsewhere. The key to the analysis of anysocial formation is the production and circulation of surplus,defined, much as in Baran, as ‘an excess of production over theconsumption needed in order to ensure the reconstitution of thelabour force’ (UD: 18). This amounts to a rich and flexibleframework for historical analysis.

Amin described a pre-capitalist world made up of three ‘central’tribute-paying formations (China, Egypt, India), with a ‘periphery’around them which was much less stable and was influenced moreby the centre than vice versa. The Mediterranean peripheryproduced a society dominated by the slave-owning mode, anddependent on its own periphery (Europe) for supplies of slaves. Thecollapse of this society faced with barbarian invaders producedEuropean feudalism and, finally, capitalism. On the far easternperiphery of China, Japan evolved a feudal society and thus anindigenous capitalism. All this bears a suspicious resemblance toMarx’s (now usually derided) judgement that Asiatic societies haveno real history, but with the reversal that these Asiatic societies arenow called ‘central’. One point is that progress took place on theperiphery; Amin argued that today the transition to socialism muststart from the periphery. It is an interesting thought, though thefeudalism–capitalism transition is so different from the transition tosocialism that the analogy cannot really be regarded as a proof ofanything.

Amin’s treatment of feudalism is somewhat inconsistent. It is themost developed form of the tribute-paying mode: ‘when well

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developed [the tribute-paying mode] nearly always tends to becomefeudal (this happened in China, India and Egypt)’ (AWS: 140), sothat the ‘central’ tribute-paying formations are described as movingtowards feudalism. On the other hand, feudalism is peripheralbecause it is a borderline case analytically (IUD: 16) and because itdevelops on the borders (geographically) in areas where naturalconditions were less favourable and centralizing tendencies weaker(UD: 55-6). This may represent a shift in position between the twoworks cited, but I suspect that it is a reflection of the unsatisfactorystate of the definitions. The point, of course, is that capitalismemerges from ‘peripheral’ feudalism, so the erstwhile peripherybecomes central.

The emergence of capitalism from its feudal origins is a familiarstory, explained both by the formation of a landless proletariat andby mercantile accumulations of loot; which is the determiningfactor is not clear. It is clear, however, that capitalism emerged whereit did because it was preceded by feudalism. The ‘new’ capitalistcentres of the USA, Canada, and the like, were by-products ofproletarianization at the centre, which led to emigration and to theformation in areas of settlement of societies which had an unusuallylarge element of petty-commodity production, and thus anunusually favourable context for capitalist development.

Amin divided the development of the capitalist world economyinto three (familiar) stages. The first, mercantilist stage, is markedby the emergence of capitalism in its homelands and by theestablishment of a net of exchange relations connecting capitalistwith pre-capitalist formations. The next stage is that of developedpre-monopoly capitalism (‘competitive capitalism’ for short,though relations with the periphery were often monopolistic),lasting from about 1800 to about 1900. This stage, according toAmin, was characterized by approximately equal exchangebetween centre and periphery (since wages were still low at thecentre). Productivity increases were passed on as price reductionsunder competitive conditions. It was a ‘pause’ of a century while‘Europe and the United States withdrew into themselves’ (UD:187). Again, there are inconsistencies in Amin’s phraseology, if notin his story, in that his ‘pause’ was also a period in which ‘externalextension of the capitalist market was . . . of prime importance as a


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means for realising surplus value’ (p.188, i.e. the following page).During this period, in any case, the foundations of a new pattern ofinternational specialization were laid, and the dividing line betweencentre and periphery was established.

Amin was, of course, mainly interested in the imperialist stage(from 1900). Wages started to rise (with productivity) at the centre,capital became fairly mobile, and world markets became closelyintegrated, creating the conditions under which unequal exchangetakes place. In the emerging periphery, capitalist development wasblocked by the competitive strength of the centre, and pre-capitalistmodes of production survived. Peripheral social formationsdeveloped in a variety of ways, according to the pre-existing socialstructure, the date of capitalist penetration, the opportunitiesoffered by natural conditions and so on. It is in the analysis of thesedifferent paths to peripheral capitalism that Amin’s skills as a writerof analytical history are most evident, and I will not try tosummarize.

All of these varied peripheral formations, however, movetowards a common pattern of peripheral capitalism. There is someambivalence in Amin’s account; on the one hand peripheralcapitalism is defined by the persistence of pre-capitalist modes ofproduction while, at the same time, pre-capitalist modes havebecome a mere ‘shell, whose content has become the sale of labourpower’ (IUD: 191).

We too often confine ourselves to looking for the capitalistrelation at the ‘microeconomic’ level, that of the firm. . . . Inperipheral capitalism . . . the petty commodity production modemay appear to be integrated within the capitalist market, but inreality capital dominates the direct producer. The latter is not apetty commodity producer. . . . In fact he is very like the cottageindustry proletarian as he formerly existed in Europe; that isexploited by capital to which, in fact, he sold his labour powerrather than his product. Here the failure to see that it is the saleof labour power which gears the system is a failure tounderstand the unity of the world system. (IUD: 90-1; see alsoUD: 361)

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The absorption of pre-capitalist modes by capitalism (as opposedto an articulation between distinct modes) has developed veryrapidly recently. Amin also conceded that the rise of multinationalcompanies could change matters drastically, as they shift theiractivities to sources of low-cost labour. Taken together these hintscould be the basis for a prediction that ‘peripheral capitalism’ is inthe process of changing very fundamentally and rather rapidly.

At the heart of Amin’s argument is an economic process: thedevelopment of capitalism in the periphery is blocked by thesuperior competitive strength of the industries of the centre,manifested in an ability to undercut the industries of the peripheryor to establish a price level which prevents new industries emergingat all. This mechanism works, according to Amin, at all stages ofdevelopment, both of the centre and of the various socialformations of the periphery, at least from the industrial revolutiononwards.

The distortion towards export activities (extraversion), which isthe decisive one, does not result from ‘inadequacy of the homemarket’, but from the superior productivity of the centre in allfields, which compels the periphery to confine itself to the roleof complementary supplier of products for the production ofwhich it possesses a natural advantage: exotic agriculturalproduce and minerals. When, as a result of this distortion, thelevel of wages in the periphery has become lower, for the sameproductivity, than at the centre, a limited development ofindustries focussed on the home market of the periphery willhave become possible, while at the same time exchange will havebecome unequal. The subsequent pattern of industrialisationthough import-substitution, together with the (as yetembryonic) effects of the new international division of labourinside the transnational firm, do not alter the essentialconditions of extraversion, even if they alter the forms that ittakes. (UD: 200)

The destruction of craft production and the blockage of capitalistindustrialization forced the population into pre- capitalistagriculture, in the first instance, and later into an overexpanded


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tertiary (service) sector, forcing down wages and reinforcing thehold of landlords and other pre-capitalist exploiting classes. Bothlow wages and the persistence of pre-capitalist modes follow fromthe absence of a fully fledged industrial sector. There are othermechanisms at work as well. Capital never scorns extra-economiccoercion when it is the most cost-effective means to maximizeprofits, and coercion is absolutely necessary to break into societieswhere commodity production is not well established. State power,and the economic power of monopoly, also play a role at all stagesof development. However, Amin stressed the convergence of theformations of the periphery towards a common path, despite theirvery different histories; the economic mechanism summarizedabove is his general explanation of the persistence ofunderdevelopment.

Amin’s line of argument can be related to the theory of‘comparative advantage’ or ‘comparative costs’. There are twoelements to it. First, for simple geographical reasons, the peripheralformations have a comparative advantage in the production of‘exotic agricultural produce’ and (certain) minerals. This is notdifficult to accept. Second, the employment created is not sufficientto absorb the whole labour force. Historical experience suggeststhat this may be true, but the exact mechanisms involved are notclear from Amin’s account, and need further examination. Apreliminary point must be dealt with at the start. In mainstreameconomics, the productivity of labour in different branches ofproduction in different countries is taken as given. Amin, rightly,criticized this. The periphery is not ordained by nature to be asupplier of raw materials; the productivity of labour in differentactivities is the result of a historical process of development. Whata theory of specialization can do is to show how unequaldevelopment manifests itself in trade relations. These relations, inturn, modify the subsequent pattern of development.

Standard post-Ricardian theories of international specializationare based on an assumption of full employment. This is not soobvious in the usual Ricardian example with only two goods, sinceif one country specializes in one, the other country must specializein the other. In practice, of course, there are a multiplicity ofcommodities. Suppose there are two countries, A and B. If one, sayA, has twice the labour force of the other, then it must specialize in

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the production of commodities that absorb two thirds of the totallabour of the two-country system. If we think of a spectrum ofcommodities, arranged in order, with those in which A has thegreatest comparative advantage at one end, a dividing line must beestablished between A’s exports and its imports, at a point thatallows full employment in both countries. How could this happen?If there is unemployment of resources in A, then factor rewards(wages, profits, etc.) must fall there, until A is able to undercut B insome additional branches of production. The dividing line is movedalong the spectrum of activities until full employment (or at leastequal unemployment) is established everywhere.

In Amin’s account, by contrast, the industries assigned (by the‘invisible hand’) to the periphery are not enough to absorb theproductive resources available there, so there is massiveunemployment and, at the same time, money capital is divertedaway from productive uses. It seems that his argument isincomplete; falling wages (and other factor rewards) should restorethe periphery’s capacity to compete in enough areas to offset the fallin demand.

In fact, his analysis is in an even worse position. He claimed thattrade with a more advanced economy will create unemployment.Ricardo’s classic analysis (1951, chapter 7) is intended to show thattrade will raise incomes in the less advanced as well as the moreadvanced economy, so there is no need to force down wages in orderto restore full employment. The point of the Ricardian argument issimple: exchange of commodities can only transmit a structure ofrelative prices. If one country can produce every commodity with,say, a hundred times lower real costs than the other country thismakes no difference at all provided that relative costs are the same.I will examine the analysis, to begin with, for the case where bothcountries are wholly capitalist; the basic point applies to anycommodity-producing system.

There are two distinct cases in which Amin’s account can berescued. First, there is the case in which the comparative advantagesare such that the less developed area is excluded from activitieswhich are relatively labour-intensive given the techniques used inthat area. This is exactly Amin’s case; the periphery was excludedfrom ‘industrial’ activities, which were carried out by labour-intensive (craft) methods, and forced to specialize in agriculture


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(land-intensive). The result is increased pressure on the land, raisingrents and either forcing down wages or creating unemployment.(This is an application, in different circumstances, of the Stolper-Samuelson (1941) argument.) Here, it is the pattern of comparativecosts that matters.

The second case is quite different. The Ricardian argumentassumes that only commodities are mobile between differentcountries, so only (relative) commodity prices are equalized.Suppose, instead, that capital is mobile as well. Capitalists set upproduction wherever costs are lowest. Costs depend largely on unitlabour costs, and hence on wages relative to productivity. This isstill not enough to ensure that there will be de-industrialization andunemployment in the periphery. If the wage differential matches the(assumed) productivity differential, there is no reason for theperiphery to be uncompetitive. Amin considered this possibility(new ‘light’ industries are established in the periphery once wages inthe centre have risen far enough), but it plays only a subsidiary partin his argument. We therefore have to assume that wages are, at leastto some extent, fixed in real terms; for example, in the nineteenthcentury wages were close to subsistence in both centre andperiphery, so wages could not be cut in the periphery. (On thetheoretical argument underlying this paragraph, see Brewer 1985.)

It follows, then, that trade can cause unemployment, as Aminclaimed it did, when capital is mobile and productivity differencesoutweigh differences in wages. The more advanced country has thehigher rate of profit (lower costs), so capital flows out of the lessdeveloped country, leaving unemployment. Specialization isdetermined by absolute and not comparative costs. Ricardocommented on this possibility in a passage cited by Amin (Ricardo1951: 136). Amin referred to the outflow of capital from theperiphery to the centre, which fits in with this analysis, though healso argued that profits are higher in the periphery than in the centreas a result of super-exploitation, which is not consistent with theanalysis presented here.

The level of productivity in different activities, and its evolution,are clearly crucial to the argument as I have presented it. Amindiscussed the pattern of relative ad vantages under the guise of adiscussion of ‘sectoral unevenness of productivity’ (in theperiphery):

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It is not, of course, possible to compare productivities in thestrict sense of the word except between two enterprises thatproduce the same product. . . . Between one branch and anotherone can speak only of different profitabilities, as Emmanuel hasreminded us. All the same, if, with a given price structure,conditions are such that labour, or capital, or both, cannot berewarded in one branch at the same rate as in another, I say thatproductivity is lower in that branch. In the capitalist mode ofproduction . . . the effective tendency is for labour and capital tobe rewarded in all branches at the same rates. If, however, thisprice structure [of the centre] . . . is transmitted to the periphery,the result will be that factors cannot be rewarded at the samerate in the different branches if the technical conditions (and sothe productivity) are distributed otherwise than at the centre.(UD: 215-16)

Note the assumption here that the price structure of the centredetermines world prices. This rules out unequal exchange inEmmanuel’s sense, since the point of unequal exchange is preciselythat low wages in the periphery are incorporated in low prices forthe periphery’s products (see chapter 9 below). Amin could,perhaps, argue that prices are intermediate between thosecorresponding to the costs of the centre and of the periphery, givingboth unevenness of productivity (as defined) and unequalexchange.

In IUD, Amin went much further in rejecting Emmanuel’sanalysis, asserting that the same products are produced at the centreand in the periphery and even denying that ‘the productionsexchanged on the world market are specific, that they haveirreducible use values’ (IUD: 209). The point seems to be that itdoesn’t matter what is produced, since a demand can be created foranything, say for plastic flowers. However, even if the goodsproduced are constantly changing they must still be distinct fromeach other, or there is no basis for exchange or for a social divisionof labour. In particular, if use values are not ‘specific’, there is noroom for unequal specialization, and Amin’s analysis evaporates,along with the theory of unequal exchange. If the peripheryproduces the same range of goods as the centre, they must sell at the


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same prices, and super-exploitation must appear as super-profitsfor firms producing in the periphery, rather than through unequalexchange. Super-profits and unequal exchange could coexist ifcapital were only partly mobile. Amin did not specify theassumptions involved clearly.

Levels of productivity, and their evolution, remain to beexplained. Amin largely took them for granted. At an early stage inthe evolution of the world economy, when commodity exchangewas the only integrating factor, productivities in different areaswould differ according to the level of development reached.Specialization would depend on comparative (not absolute) costs.Given a pattern of costs such that the periphery was excluded fromthe main lines of industry, the pattern would tend to persist, or to bereinforced, since there would be no opportunity to gain experiencein industry.

Once capital becomes mobile, it is difficult to see whytechnology, and hence productivity levels, are not transferred, alongwith capital. They clearly have been in some cases, as Amin knew(IUD: 212). A major part of the answer must surely lie in externaleconomies: conditions of production that an individual enterpriseeither cannot provide for itself or need not provide where theindustry is already well established. Examples are a skilled labourforce, a network of suppliers, suitable transport services, and so on.These are, of course, all reasons why it is difficult (i.e. in a capitalistcontext, costly and hence unprofitable) to establish production in anew location. In the earlier parts of the imperialist stage, say around1900, when wages in the centre were still fairly low and technologywas still largely in the hands of skilled workers rather than beingsystematized and brought fully under the control of capital (cf.Braverman 1974), it is easy to see that there was little incentive forestablished capitalist firms in the centre to shift production to theperiphery.

In the present stage, however, wage differentials are large, andmultinational firms have great experience of transferringtechnology, so it is much harder to see why a productivity gapshould persist. Without it, Amin’s main arguments would collapse.He admitted that transfer of industries from the centre to theperiphery is indeed the tendency, but gave a number of reasons why

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this tendency does not dominate. First, it takes time, and is onlybeginning. This is true, but why should it take much more than, say,the turnover time of capital equipment? Second, capitalism needsthe high wages of the centre to provide a market (IUD: 213). Evenif this were true (it is yet another version of under-consumption,which I have already criticized at length), it would still not explainwhy individual companies should continue to produce where wagesare high. Third, he referred to the need for balance of paymentsequilibrium (IUD: 213). This is no argument: large-scale capitaloutflows from the centre would not disturb its balance of payments,if accompanied by exports of capital goods. Once industries havebeen transferred, the centre’s capacity to pay for imports would bereduced, but so would the general level of activity and hence thedemand for them. Amin was willing to accept this argument for theperiphery; why not for the centre in its turn? Fourth, developmentin the periphery must be blocked and distorted in order ‘toreproduce its own conditions of existence’ (IUD: 218). This simplyrestates the problem. Why and how does it reproduce itself? Hefinally, rather desperately, asserted that if, say, Mexico were tobecome a fully developed province of the USA, ‘the contradictionwould shift from the economic to the cultural and politicaldomains’ (UD: 381).

To sum up, Amin provided a plausible account of the evolutionof a periphery which is integrated, by stages, into a world market,while retaining a distinct wage level, a distinct social structure(persistence of pre-capitalist modes) and a lagging productivitylevel, at least in some sectors. He did not, however, have an adequateexplanation of the evolution of productivity, especially in the era ofmultinational companies. De Janvry (1981: 9) treated Amin as partof the revival of classical Marxist ideas (‘to some extent’); his overallframework, however, was recognizably in the dependencytradition, even if his use of the concept of a mode of production wasmore sophisticated than most.


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8.5 DEPENDENCY THEORY: THE BALANCE SHEET

The essential elements of the dependency approach seem to be: (1)the (capitalist) world system is divided into a centre and a periphery(or equivalent terms); (2) the societies of the periphery are‘dependent’, while those of the centre are not; (3) dependencyrestricts or distorts development in the periphery in some harmfulway. I will consider these three elements in turn.

Dependency theory divides the world system into centre andperiphery. Frank, it is true, allowed for a chain of satellites, satellitesof satellites, and so on, while Wallerstein introduced a ‘semi-periphery’, but the terminology clearly shows the underlyingbipolar model. If such a classification is to be useful, there must beimportant features shared by all peripheral economies whichdifferentiate them from all the centre economies. It is very hard tosee what they are. Consider, for example, Korea, Ethiopia, India,Singapore, and Argentina. All would, I think, be counted asperipheral by most dependency writers, but what is gained bylumping them together? The only way to justify classifying them allas ‘peripheral’, is to claim that all are ‘dependent’.

It is surprisingly hard to discover what ‘dependence’ means. Theroot meaning seems to be that the countries of the centre are in somesense masters of their own fate, while the dependent countries of theperiphery are not. In any simple sense, this is clearly ridiculous; inthe modern world, no country is unaffected by external events. Sizematters, of course; the USA clearly relies less on external markets(for example) than Singapore does, but equally, Belgium is more‘dependent’ (in that sense) than India. Something more must bemeant. One possible meaning is that the countries of the centre gainfrom their involvement in the world system, while the countries ofthe periphery do not. I postpone discussion of this possibility for amoment. Another element in the idea of dependence, I suspect, is thenotion that the world system is somehow shaped by the centrecountries to suit their own purposes. This might reasonably be saidof the political role of the major countries; imperialism in thetraditional sense was exactly the reshaping of the world to suit thedominant imperial powers, and it is entirely possible to claim thatimperialist powers continue to exert political dominance afterformal independence, or over countries that have never beenformally subjugated. The point of dependency theory, however,

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seems to be that the impersonal mechanisms of the market maintainthe dependence of some countries on others, without the need to usestate power overtly (Wallerstein is an exception to this rule). If thisis what is meant, it betrays a failure to understand how capitalismworks. There is no central planning agency in a market system, nooverall purpose. Huge numbers of individual businesses andhouseholds, in many different countries, make their separate plans,which interact through the market. In the absense of stateintervention, countries are not relevant units, at this level ofanalysis.

The crucial element in dependency theory, then, has to be theclaim that development in ‘dependent’ countries is restricted ordistorted in some way, while development in the centre countries isnot. This is not an easy claim to assess, since it presupposes somestandard rate and pattern of development which the dependentcountries are unable to attain. Early writers in the dependencytradition were fairly clear about what they meant; the peripherywould lag even further behind the centre, would be unable todevelop a significant industrial sector, and would continue todepend on primary product exports to pay for their imports ofmanufactures. This is not what has happened. I postpone fullerdiscussion to chapter 11, merely noting here what any standardstatistical source will show; output has grown more rapidly in lessdeveloped countries than in more developed countries. Populationhas also grown faster, but even so per capita output has at least keptpace. Industrial output and exports have grown even more rapidly;a widespread process of (capitalist) industrialization is underway.The point is not that capitalism is doing a good job, in some abstractor ideal sense; there is poverty, working conditions are often verybad, and so on. The point is that dependency theory gives no usefulguidance to the analysis of these problems. There were someattempts to define a concept of ‘dependent industrialization’, butthis impressed few apart from those with an intellectual investmentin dependency theory to protect.

An even more telling indictment of dependency theory is thegross unevenness of capitalist development in the Third World. Afew countries have experienced extremely high rates of growth, andwill clearly join the centre countries soon. The most widelydiscussed examples are in east Asia, though there are examples insouthern Europe and elsewhere. By contrast, other parts of the


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Third World have grown very slowly, and in some cases per capitaincomes have actually fallen substantially over decades. Growth ofmanufactured exports has been even more heavily concentratedinto a few exceptionally successful places. To force these verydifferent cases into the single category of ‘dependence’ is simply nothelpful.

It is slightly difficult to understand how dependency theory cameto dominate radical thought in the way it did, given its visibleweaknesses, and even harder to explain why Marxists accepted aframework of analysis so alien to the mainstream of Marxistthought. It can be argued (Harris 1986, ch. 7) that dependencytheory, and related ideas, served the interests of the emerging middleclasses of the Third World. Certainly, a system of thought whichblamed all ills on foreigners, and legitimized state intervention tosupport domestic industry, was very convenient both for thepersonnel of the state apparatuses and for emerging industrialcapital. Dependency theory emerged at a time when classicalMarxism was very weak, and had its roots in developmenteconomics, from which it inherited the concepts of nationalinterests and national development. It has come to look like a blindalley, and attention has switched to examination of the differencesin the internal structures of different ‘peripheral’ countries.

8.6 SUMMARY

Both Frank and Wallerstein identified capitalism with a network ofexchange relations, on a world scale, that channel surplus fromsatellite (periphery) to metropolis (core). Both insisted that theinternal structure and development of different parts of the worldeconomy is primarily determined by their place in the whole, andthat the organization of production at a lower level (enterprise,sector, nation state) is secondary. Both asserted that developmentand underdevelopment are opposite sides of the coin, that one is theresult of the other. My main criticism of both writers is that there islittle connection between their grandiose general statements andtheir (sometimes illuminating) discussion of particular historicalcases. What is lacking is real theory. Frank and Wallerstein did,however, make an important contribution by insisting on the

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importance of underdevelopment and the necessity of analysing itin terms of the development of a world system.

Amin argued that the capitalist world economy is divided intotwo distinct types of social formation, those of the centre and thoseof the periphery. In the centre, the capitalist mode of productioneliminates other modes, and generates a process of development ofthe sort analysed by the classical Marxists. In the periphery,capitalist development is ‘blocked’ by the competition of the moreadvanced industries of the centre, so pre-capitalist modes persist fora long time, and an economic and social structure quite distinctfrom that of the centre arises. Amin’s explanation of unequalspecialization hinges on relative levels of productivity in the centreand the periphery, which he did not explain fully. His is the mostsophisticated version of dependency theory, and contains manyvaluable insights.

On a more general level, dependency theory fails, because itcannot explain the burst of industrialization in the so-calledperiphery in the decades since the Second World War, nor can it helpto account for the extreme unevenness of capitalist development inthe Third World.

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9

Emmanuel

Arghiri Emmanuel’s theory of unequal exchange is in completecontrast to the main traditions of Marxist thought on imperialismand the world economy, and is equally distant from conventionalnon-Marxist theories. It is a genuinely original contribution.Marxists have generally identified the mainspring of imperialismeither with the development of monopoly (in exchange or inproduction) or with the expansion of capitalism at the expense ofpre-capitalist modes of production. Emmanuel’s break with thesetraditions is indicated by the subtitle of his book: ‘a study of theimperialism of trade’. He claimed that free trade between twowholly capitalist countries can still be ‘unequal’, and that thisunequal exchange is the foundation of the massive inequalities thatexist in the world economy. His explanation does not rest on anymonopoly by capitalist firms, nor does it involve any exercise ofstate power in international relations. Note that ‘imperialism’, inthis context, refers to exploitation and inequality, but not (as itusually does) to military or political domination of some countriesby others.

Emmanuel extended Marx’s theory of ‘prices of production’ tothe determination of international prices, making the keyassumption that goods and capital are internationally mobile, whilelabour is not, so prices and profit rates are equalized internationallyby competition, but wages are not. This seems at least a reasonablestarting point. I shall argue that Emmanuel’s theory provides apotentially useful component of a theory of the world economy, butcannot be regarded as complete in itself or as a complete account ofthe way the world system works.

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The term ‘unequal exchange’ is not new, and has often been usedby other writers, usually very loosely. Unequal exchange, so called,may be ascribed to monopoly pricing, to ‘transfer prices’ used toevade tax, and so on. Alternatively, it may be argued, followingMarx, that high productivity labour in an advanced countryproduces more ‘value’ (in the terms of the labour theory of value)than lower productivity labour in more backward areas. Theproduct of an hour’s labour in an advanced country will thenexchange for the product of a great deal more labour in anunderdeveloped country. In this case ‘unequal exchange’ is merelya reflection of divergences in productivity that have other causes.Mandel (1975, ch. 11) seems to combine all of these arguments atonce in an account which is both eclectic and lacking in rigour.Roemer (1982: 55-60) presented a model in which returns to capitalare equalized, even without capital mobility, so countries with morecapital have higher average incomes. Lewis (1969) is moreinteresting, and will be discussed briefly at the end of this chapter.

Emmanuel’s theory is set out in his book Unequal Exchange(1972, cited below as UE), which also contains, in the edition cited,a debate between Emmanuel and Bettelheim. See also Amin (1977,part IV) and Gibson (1980) for discussion of Emmanuel’s theory.An article by Emmanuel (1974), which is really a contribution to adifferent debate, elaborates some of his views, especially on demandand capitalist development. His more recent work has taken arather different direction (e.g. Emmanuel 1982); I shall concentrateon Unequal Exchange because of the influence it has had.

9.1 UNEQUAL EXCHANGE

The statement of the theory in the body of Emmanuel’s book wasmodelled on Marx’s solution to the transformation problem, sointernational exchange was presented first in terms of labourvalues, which were then ‘transformed’ into prices of production.Following Bettelheim’s criticisms of some of his statements (from amore orthodox Marxist standpoint), Emmanuel counter-attackedby elaborating a consistent treatment of prices of production ratherthan retreating under fire. I will, therefore, present the theory in itsmore developed form (as set out in Appendix V to the English


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edition) without using labour values at all. In this section thepresentation will be informal; for a more formal statement, see theappendix to this chapter.

Emmanuel defined a factor of production as ‘an establishedclaim to a primary share in society’s economic product’. Criticizedby Bettelheim for looking at production only in terms of monetarymagnitudes and not at the material basis of these magnitudes, hereplied that the social relations of production are precisely relationsof property ownership, of appropriation, and hence of claims to ashare of the product. In a capitalist economy, there are two factors(two classes). Mobility of labour tends to equalize wages betweenindustries, while competition between capitals (mobility of capital)tends to equalize profit rates. Prices of production (equilibriumprices) are thus made up of money costs (wage costs, materials,depreciation of fixed capital) plus a profit margin sufficient to givethe general rate of profit on the capital invested. Prices and the rateof profit can only be determined simultaneously, since the prices ofmaterials and capital goods enter as costs, while profit must becalculated on the capital required, which depends on the price ofcapital goods. This is a standard problem in Marxist economics,and the algebra is now well understood (see UE, Appendix V or anymodern text on Marxist economics, e.g. Howard and King 1985).The first complete solution was by Bortkiewitz: Emmanuel’ssolution is modelled on Sraffa (1960). The formal statement is in theappendix to this chapter.

In Emmanuel’s story, as in Marx’s, the real wage is assumed to befixed. I will discuss the determinants of wages later, in section 9.2.In simple terms we can think of the profit rate as determined by thegap between what is produced and the fixed wage level, togetherwith the methods of production used and hence the capital intensityof production, and we can think of prices as determined by costs (ofwhich wages are a major component) plus profits (determined in theway just described).

Turning to the world economy, Emmanuel made the keyassumption that capital is mobile internationally, so a single rate ofprofit is formed at the world level, while labour is not mobilebetween countries, so workers in different countries are not(directly) in competition with each other, and different nationallevels of wages may be formed. Products are assumed, at this stage

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in the argument, to be freely traded (transport costs are ignored) soa single set of prices of production exists for the whole world.

If two countries (or groups of countries) have different wagelevels there are two ways in which the profit rate can be the same inboth, without any product having two different prices (free tradeand competition rule out multiple prices for the same good). First,if they produce the same products, profits can only be equalized ifthe high-wage country has higher productivity, so costs are the same(or, more strictly, so labour and other costs plus the general profitrate add up to the same price of production). In this case, differencesin wages correspond to, and are explained by, productivitydifferences. Although Emmanuel accepted that this explanationapplies to some goods, he did not treat it as the normal case, on thegrounds that there is an international division of labour in whichcountries (or groups of countries, advanced and underdeveloped)specialize in different goods.

The second possibility is the one in which ‘unequal exchange’ canoccur. The two countries may produce wholly differentcommodities, so they are not in direct competition with each other.If one good is produced only in the high-wage country and the otheronly in the low-wage country, the price of each must incorporatewage costs, so their prices reflect the differences in wages. To put itsimply, the products of the high-wage country are dearer and theproducts of the low-wage country cheaper than they would havebeen if wages were the same in the two countries; this is whatEmmanuel calls unequal exchange. Two points should be notedhere for later discussion. First, it is assumed that wages are givenindependently of prices: ‘wages are the independent variable’, sowage differences are the cause of unequal exchange. Second, theremust be some barrier that prevents all production moving to thelow-wage country and enjoying lower costs of production. Thetheory thus assumes a predetermined pattern of internationalspecialization.

Exchange is ‘unequal’ because the low-wage country has to paymore for its imports than it would if wages were the same in bothcountries, without getting higher prices for its own exports. It thushas to export more to get a given amount of imports.Correspondingly, the high-wage country gets more imports inreturn for a given amount of exports. Whether the actual amounts


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traded would stay the same at different prices is another matter; theargument is concerned only with the terms of trade.

To see how the theory works, I will take a very simple andunrealistic numerical example, to illustrate the principles involved.I have deliberately set it up so that the two countries are as alike aspossible. Suppose there are two countries (A and B) and two goods(1 and 2). Country A produces only good 1, while country Bproduces only good 2. I will compare two cases: with wages thesame in the two countries, and with wages higher in A. I assume thatthe production of five units of good 1 (in country A) requires oneunit of labour, together with inputs of one unit of good 1 itself andone unit of good 2, as means of production, at the beginning of theperiod. For good 2 (in country B) conditions of production areexactly the same; five units are produced by one unit of labour andone of each commodity. Wages are assumed to be fixed in real terms.In the first case, with wages the same in A and B, each worker mustbe paid enough, at the beginning of the year, to buy one unit of good1 and one unit of good 2. For each worker employed, a capitalistmust lay out, at the beginning of the year, enough money to buy oneunit of each good to use as means of production, plus a wage enoughto buy one unit of each good.

To calculate profits, we must know the money costs and moneyreceipts. We cannot, in general, calculate costs without knowing theprices of the goods, and we cannot calculate the price withoutknowing the costs and profit. What we must do is to find bothsimultaneously. (In this case we can get to the rate of profit directlysince it is obvious that the two goods must sell for the same price;this is not so in general.) In this particular case, all costs are in theform of capital outlays at the beginning of the year, so annual costsare the same as capital employed. We can write:

selling price = cost + profit,

but rate of profit = profit/capital = profit/costs;

so, writing r for the rate of profit:

selling price = (1+r) costs.

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The price equations follow directly, given that the rate of profit mustbe the same in both countries:

5p1 = (1 + r) (2p1 + 2p2) 5p2 = (1 + r) (2p1 + 2p2)

where p1 is the price of good 1, and p2 the price of good 2. Fromthese equations, it follows immediately that p1 = p2 and r = 0.25 or25 per cent. The actual levels of p1 and p2 cannot be determined, butthis does not matter; it is only the terms of exchange that count,together with the real purchasing power of the wage, already fixedby assumption.

Now suppose that the wage rate in country A goes up, so it willnow buy one and a half units of each commodity, while the wage inB is enough to buy one unit of each, as before. Following exactly thesame procedure, the price equations can be set out again:

5p1 = (1 + r) (2.5p1 + 2.5p2) 5p2 = (1 + r) (2p1 + 2p2)

The rate of profit, r, falls to 1/9 or 11.1 per cent (add the equationsand (p1 + p2) cancels out), and relative prices follow; p1 = 1.25p2.The low-wage country, B, now has to export 1.25 units of its export,good 2, in order to buy one unit of its import, good 1. Its ‘terms oftrade’ (export price divided by import price) have worsened by 20per cent. Since real wages have gone up, if only in one country, andproductivity is still the same, the profit rate is reduced.

Nothing has been said about the amounts produced and traded;to say anything about this would require additional assumptions.The theory of unequal exchange is, in the first instance, a theory ofprices, of the terms of exchange, which depend on costs per unit ofeach product and on the wage rate for a unit of labour-power. As anillustration, I will set out a possible outcome, in terms ofproduction, consumption, and trade, of the example of pricinggiven above. Suppose that goods 1 and 2 are always used in fixedproportions, one unit of good 1 to one of good 2, both as means ofproduction, and when they are bought as consumer goods byworkers or by capitalists, regardless of their relative price, and thatall wages and profits are spent on consumer goods with no netinvestment. Both assumptions are very restrictive; more realistic


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cases will be discussed later. Suppose that 100 workers areemployed in each country. With wages equal, as in the first set ofprice equations, we get the pattern of production and consumptionset out in table 9.1. In constructing the table, I have assumed thatprofits are consumed in the country in which they originate. Withfree mobility of capital this need not be so, since profits in onecountry may accrue to capitalists elsewhere, but this is a ratherdifferent matter from unequal exchange, and will be discussed later.

Table 9.1 Sources and uses of goods; equal wages

Notes: (1) Sources of goods (production, imports) shown as +, uses as −(2) Assumptions given in text

Table 9.2 Sources and uses of goods; wages increased in A

Notes as for table 9.1

Now compare table 9.1 with the situation where wages arehigher in country A, as in the second set of price equations above.The results are given in table 9.2. Since country A’s product now

OutputUsed as

inputUsed byworkers

Used bycapitalists

Netimports

Country A Good 1 500 −100 −100 −50 −250

Good 2 0 −100 −100 −50 +250

Country B Good 1 0 −100 −100 −50 +250

Good 2 500 −100 −100 −50 −250

OutputUsed as

inputUsed byworkers

Used bycapitalists

Netimports

Country A Good 1 500 −100 −150 −27.78 −222.22

Good 2 0 −100 −150 −27.78 +277.78

Country B Good 1 0 −100 −100 −22.22 +222.22

Good 2 500 −100 −100 −22.22 −277.78

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exchanges at a higher price, consumption in country A can be higherwithout any increase in production and productivity. Instead ofimporting 250 units of good 2 in exchange for 250 units of good 1,they import 277.78 units and only export 222.22. Although wageshave gone up in A and not B, the total profit in country A nowexceeds that in B, where they were previously equal, because the rateof profit is equalized, and the capital advanced is increased in A bythe wage increase (remember that wages are paid in advance, so thecapitalist expects profits on the advance of wages).

Before leaving the example, consider how the cases shown in thetables would be recorded in conventional national incomemeasurements. These figures are normally shown in money terms,so let the price of good 2 be fixed at $1. In the first case each countrywould have a gross product of $500, and a net product (output –replacement) of $300 ($500 − $200). In the second case, country A’sgross product is valued at $625 (500 units at $1.25) and its netproduct (net national income) at $400 ($624 − $225), while countryB’s gross product is still $500 and net product $275. Just looking atnational income figures, therefore, gives the impression that thehigh wages in country A are justified by a higher level ofproductivity, but this higher ‘productivity’ is an illusion producedby the prices at which the output is valued and is a result, not acause, of the higher wages. Physical productivity is, of course, thesame before and after the wage increase.

The ‘prices of production’ calculated in the example areequilibrium prices, determined by the equilibrium condition thatthe profit rate should be equalized. Actual prices fluctuate aroundthese levels, but always tend back towards them because wheneverthe price of (say) good 1 is above the equilibrium level, profits willbe higher in country A than country B, and capital will flow into A,expanding supply and pushing the price down.

An objection to the theory that will occur to many economists isthat a wage increase will lead to a balance of payments deficit, andhence to a devaluation of the currency of the country concerned.However, exchange rate changes make no difference, because of thekey assumption that wages are fixed in real terms, as a givenquantity of commodities. A devaluation can only affect equilibriumprices if wages are fixed in money terms, and can be reduced in realterms by reducing the value of the currency. As for the balance ofpayments, a deficit on the current account can only arise if domestic


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investment is greater than domestic saving but, with freely mobilecapital, any excess of investment over saving is financed by aninflow of capital, and any current account deficit is matched by acapital account surplus.

To give some impression of what this theory might mean inreality, consider an example given by Emmanuel (UE: 338, 367-8; Ihave made some of the calculations more explicit). His critics hadpointed out that imports into the advanced countries from the ThirdWorld amounted to $25 billion (in 1965), which was only 2.5 percent of the advanced countries’ national income of about $1,000billion. In reply he argued that if wages account for 50 per cent ofthe cost of these imports, and if wages in the Third World wouldhave to increase by twenty times to bring them to the level of thosein advanced countries, then the price of Third World exports wouldhave to rise roughly tenfold (there would be repercussions on profitsto take into account), to $250 billion, 25 per cent of the advancedcountries’ national income, a very considerable amount. One can,of course, doubt whether anything like the same volume of tradewould take place at these prices; Emmanuel’s argument isconcerned only with prices, and not with the amount traded.

Note that it does not matter what kind of goods are produced inthe high-wage countries, so long as they do not face competitionfrom low-wage producers. There is no presumption that high wage,high price goods are high technology products, or anything of thesort, though they might be. Emmanuel’s example is the price oftimber: since wages in Sweden, Canada, and other softwoodexporting countries have been high and rising, softwoods have soldat high and rising prices, while African hardwoods have not.

9.2 WAGES

The key factor in Emmanuel’s theory of international prices is thedifference in wages between advanced and underdevelopedcountries, so an account of wage determination is needed. It isessential for wages to be independent of market forces, over the timespan required to establish equilibrium prices, since wage costs couldnot underpin an equilibrium set of prices if they were themselvesliable to fluctuate. This rules out any market theory of wages. Theclassical wage theory (Ricardo, Malthus), in which wages are

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determined by physical subsistence needs, would not help either,since there is no reason for these needs to differ markedly betweencountries.

Instead, Emmanuel’s starring point was Marx’s famous, if rathercryptic, statement that the ‘quantity of commodities necessary forthe worker’ contains an ‘historical and moral element’ (which maytherefore differ between countries and over time), but ‘nevertheless,in a given country, at a given period . . . is also given’ (Capital I: 171).This can be interpreted as meaning that the real wage is veryresistant to downward pressure in the short run, even over decades,since workers have adopted a certain pattern of life and entered intocommitments which cannot easily be changed (the historicalelement). So, for example, the layout of cities may compel certainspending on transport, the physical character of the stock ofhousing may be such that it requires certain spending onmaintenance, heating, and so on, if workers are to be able tofunction at all. The moral element can be read as a claim that oncea certain standard of life has become the norm, there will be greatresistance to changing it. The wage may fluctuate around this givenstandard of living according to market influences, but anyfluctuations are too short-lived to be incorporated into it (hencewages are the independent variable). According to Emmanuel,‘historical and moral’ factors operate relatively uniformly withineach country, but not between different countries, so unequalexchange operates between countries. On a purely analytical level,his pricing model could just as well describe relations between high-and low-wage industries in a single country.

He still had to explain how the ‘historical and moral’ elementchanges over time and why it differs between countries. He arguedthat trades union pressure and political action can change theequilibrium wage by sustained action over a long period of time.Economic development does tend to raise wages, but not directly.Rather, economic development, by centralizing workers, creatingneeds for higher levels of skills and so on, makes conditions morefavourable for trades union and political action to raise wages.Emmanuel also claimed that high wages are good for development,for reasons to be considered later, so a circle is set up in whichrelatively high wages lead (over a long period) to higher wages still,and so on.

Emmanuel’s model thus divides economic forces into threegroups which act over different time scales. In the short run, prices


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and wages fluctuate around their equilibrium levels. In the longerrun, equilibrium prices are determined in the way that has beendescribed, while equilibrium wages are relatively fixed and act asthe ‘independent variable’. Given an even longer time scale there isno equilibrium state, since the process is cumulative.

Is this account of wage determination acceptable? The difficultyin forming a judgement is that although Emmanuel’s arguments areplausible enough, there are other theories that are equally plausible.The factors involved are so ill defined that it is difficult to settle theissue by using historical or empirical evidence; indeed, it is not clearthat the theory has any real content at all, beyond acting as anexcuse for treating wages as given.

Suppose prices in international trade are systematically biased infavour of the high-wage countries and against the low-wagecountries: why does it matter? In Emmanuel’s basic model, withproducts and capital freely mobile between countries, it is not clearthat it matters at all. There are three classes: the working class ineach country and a single capitalist class. It is clear that no distinctnational capitalist classes with distinct interests can exist whencapital is freely mobile between countries and a single profit rate isformed. If workers in one country succeed in raising their(equilibrium) wage, they do so at the expense of profits; this clearlyfollows from the idea (on which Emmanuel insists) that wages arethe independent variable, so a wage increase in one country cannotreduce the (given) wage in the other. All that happens is that a wageincrease anywhere harms capital on the world scale, and a wagereduction anywhere benefits capital. If capital were not freelymobile the effect would fall on the national capitalist class alone.Can we say that the high-wage country benefits as a country?Clearly not, since there is no national interest, but two diametricallyopposed class interests. High wages benefit the workers, of course,but no one ever supposed otherwise. They are not gaining fromunequal exchange but from high wages.

9.3 DEMAND AND DEVELOPMENT

Emmanuel claimed that unequal exchange acts as the basis for aprocess of unequal development, on two different counts. First,capital is attracted to demand, so the high incomes generated by

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unequal exchange attract further investment, and start a cumulativeprocess of development. Second, high wages lead to the use ofcapital-intensive methods of production, which raise productivityand promote development.

The argument that demand attracts capital investment is clearlyout of place in the models discussed so far, which assume freemovement of goods and a predetermined pattern of specializationbetween countries. High incomes in a country as a result of highwages and unequal exchange may mean more demand, but thisdemand is just as likely to be demand for the products of the low-wage countries as for home-produced goods and, correspondingly,the low-wage country’s low level of demand will also be dividedbetween both countries’ products.

There is, in fact, one good reason to expect the opposite, that highwages and prices will repel capital. If the products of the high-wagecountry sell at high prices, as the theory requires, then this willgenerally mean that less will be sold, and, correspondingly, incomeand employment in the high-wage country will be reduced. Thecritical factor is the ‘elasticity of demand’ for the country’sproducts: the percentage fall in the quantity demanded when priceincreases by one per cent. If this is greater than one, then the fall inthe quantity sold will outweigh the increase in prices, and total salesrevenue will be lower. If it is less than one, then a price increase willlead to increased receipts and an increase in national income. In thenumerical example of section 9.1, I assumed that demand wasindependent of price (elasticity of demand, zero) to get the resultthat a higher wage level corresponds to a higher level of nationalincome and expenditure. There are complications (a change inoutput will also affect spending on imported means of productionand, in addition, income changes will affect the composition ofdemand: increased demand for particular products from countrieswith increased income may not exactly offset reduced demandwhere income has decreased), but the basic principle should beclear. Price increases have a double effect: they increase income foreach unit, but they reduce the number of units sold. The overalleffect may go either way.

Is anything then left of Emmanuel’s argument that high wagesand prices generate increased demand which attracts capital? If we


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accept his (implicit) assumption that high wage and price levelsmean increased incomes, then his argument can be rescued by asimple change in the assumptions, a change implicit in hisarguments. Suppose some goods are traded internationally butothers are not. Non-traded goods include perishable and bulkygoods, construction, and many services. Protective tariffs can alsoartificially prevent certain goods being traded which otherwisewould be. In this case, high incomes in a country will mean highlevels of demand for non-traded as well as traded goods. Since non-traded goods can only be produced locally, capital will flow into ahigh-wage country to meet this demand, generating moreemployment in these industries, more incomes and hence moredemand. If, for example, half of income is spent on non-tradedgoods then each dollar of income from the production of tradedgoods will generate another dollar of income for producers of non-traded goods, taking the repercussions into account. This model,which Emmanuel did not make explicit, is reminiscent of aKeynesian foreign trade multiplier, or of the theory, in urbaneconomics, of a city’s ‘economic base’ of ‘exports’.

It is essential to the argument that each country should produceboth traded and non-traded goods. Traded goods are necessary forunequal exchange to have something to bite on; you must trade tobenefit from favourable terms of trade. Non-traded goods areessential to convert high incomes into an attraction to capital fromoutside. High prices reduce employment in the export industries byreducing the quantity sold, but the increased demand for non-traded goods may offset this. If, on the other hand, the fall in salesas a result of increased prices outweighs the increased income perunit, the mechanism works the other way round and multiplies thereduction in income and employment through a reduction indemand for non-traded goods.

Non-traded goods must, of course, be produced by local labour.Their prices are determined in the same way as those of tradedgoods, so identical non-traded goods will have higher prices in high-wage than in low-wage countries, since their prices incorporatehigher wage costs. This introduces a complication, as Emmanuelrealized. If real wages in one country are to be, say, twice those inanother, then money wages (translated at current exchange rates)

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will have to diverge much more, perhaps by four or even ten times,since high wages and a high cost of living (high price of non-tradedgoods) go together. To put it another way, if productivity in non-traded goods is the same everywhere, and so is the rate of profit,then higher standards of living in one country compared withanother can only come from a high purchasing power in terms oftraded goods (whose prices are the same everywhere), so if thefraction of traded goods in workers’ consumption is rather low, itwill require a large difference in money wages to generate amoderate difference in living standards. The divergence in moneywages determines international prices, since capitalists’ productiondecisions are governed by money costs and not by what moneywages will buy. Relatively moderate divergences in real wages maythus be the foundation for extreme inequality in exchange.

In discussing the role of unequal exchange in creating localdemand and attracting capital imports, I have assumed that demanddepends on the total incomes generated locally. It is not clear thatthis is correct, since with international mobility of capital we cannotspecify in advance where capital has come from, nor can we predictwhere profit incomes will be spent. Profits accruing to Britishcapitalists from production in Africa may well be spent in theBahamas. Workers, on the other hand, must clearly spend the mainpart of their wages in the locality where they are employed.Emmanuel, rightly, stressed the importance of wage incomes asgenerating a local demand which attracts capital. If the stress is laidon workers’ demand for consumer goods, however, the role ofunequal exchange is altered. It is high wages, rather than unequalexchange as such, which create an enlarged market. The role ofunequal exchange is to permit the equalization of profits betweencountries, so that the effect of high wages falls on profitseverywhere, not just in the high-wage country. Without thisequalization of profits, high-wage countries would be low-profitcountries and could not attract capital.

I should stress that the model built up in this section is mine ratherthan Emmanuel’s, though I think it embodies the essential points ofEmmanuel’s arguments. I have tried to indicate the points takendirectly from Emmanuel by linking his name clearly with them.


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It is worth pausing to take a general look at the picture of theworld economy built up in this section. It might appear to be anunder-consumptionist model, in that development is made todepend on demand, and specifically on workers’ consumptiondemand, but it is not. There is no assumption that demand is lackingon a world scale. The question under discussion is: where doesgrowth take place? With free mobility of capital between countries,the critical factor is the division of new investment betweendifferent locations. With a predetermined pattern of specializationbetween countries in the production of traded goods (which isessential to the theory, as presented so far) the scope for expansionis determined outside any given country, on the world scale. Whatthe pricing mechanism of unequal exchange does, is to determinethe terms on which a country participates in this world division oflabour, and that, in turn, governs the scope for expansion in the non-traded goods sector.

In this model, then, unequal exchange does not generate acumulative growth of inequality between countries unless there is acumulative growth in wage differentials. Emmanuel did indeedpredict a cumulative enlargement of wage differentials, which turnsout to be crucial to his whole argument: again his theory of wagesemerges as the heart of his whole theory.

9.4 METHODS OF PRODUCTION

The second main plank in Emmanuel’s argument linking unequalexchange to real development, is that high wages lead to a highorganic composition of capital and also a high ‘organiccomposition of labour’. (The latter phrase is Emmanuel’s owninvention.) Again, unequal exchange is important primarily as amechanism that permits relatively high wages in one countrywithout a corresponding relative depression of profits.

As far as the organic composition of capital is concerned, thebasic point is simple. Capitalists try to minimize costs (competitionforces them to do so) by substituting means of production forlabour when wages are high. More exactly, they use more of thosemeans of production produced in low-wage countries, since those

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produced in the high-wage area itself will also be increased in price.The effect, therefore, is to reduce employment in the high-wagecountry in much the same way as substitution of lower-priced forhigher-priced products does, and to reduce the attraction of capitalto the production of non-traded goods in high-wage areas. It is not,then, at all clear why mechanization caused by wage increasesshould be beneficial to capitalist development in the country wherethe wage increase takes place. One can, of course, say thatmechanization is development, and thus define the problem away (Idon’t think Emmanuel quite did this, though he came close to it attimes), but the real question is whether it provides a further impulsefor sustained or cumulative development. Emmanuel’s answer is toargue that mechanization alters the social character of work and ofproduction and thus lays the foundations for further wageincreases. This links up both with his theory of wages (above) andwith the organic composition of labour, to which I now turn.

High wages, according to Emmanuel, bring about a high ‘organiccomposition of labour’. By this he means a high proportion ofskilled workers, professionals, and so on, in the total labour force.Even if basic wage rates and the scale of wages were the sameeverywhere, areas with a large proportion of high paid skilledworkers would have a higher level of per capita income andtherefore larger markets. Why should there be a connectionbetween high basic wage rates and a high proportion of skilledworkers? A casual comparison of rich and poor countries suggeststhat these two factors do, in practice, go together, but what is neededis a relation of cause and effect, not just a statistical associationwhich might well be the result of a some third factor.

It is possible to argue that mechanization is the result of highwages (see above), and that mechanization, in turn, leads to thetraining and employment of engineers, technicians, and so on.However, Marx argued that mechanization tends to eliminateskills, and Braverman (1974) has reemphasized this aspect ofMarx’s thinking. Braverman also argued that conventionalclassifications of skills are seriously misleading; farm workers andothers usually classified as unskilled, are, in fact, highly skilled. Thisdoes not directly undermine Emmanuel’s position, since he wasconcerned with the proportion of socially recognized skills,


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recognized by being paid above the rates for other workers. It does,however, suggest the possibility that certain skills are recognizedand rewarded because they are particularly important in high-wagecountries, while traditional craft skills may be badly rewardedprecisely because they are practised in low-wage areas. If this is so,then a high or low organic composition of labour becomes merelythe way high or low wages are manifested, rather than being adistinct result of high or low wage levels with its own distinct effects.I conclude that Emmanuel has not succeeded in demonstrating thispart of his case.

9.5 CRITIQUE OF THE THEORY

Before going on to the main criticisms of the theory, it is worthlooking at some historical examples which Emmanuel presented toshow how the theory can be elaborated to deal with thecomplexities of the real world. First, consider England in the periodof the industrial revolution. England made a decisive advanceduring this time, laying the foundations of a century of dominancein the world economy. Real wages, however, did not rise to anysubstantial extent until after the major advances had been made,contrary to Emmanuel’s theory in which wages are the independentvariable and high wages lead to development. Emmanuel claimedthat wages in England were relatively high even before the industrialrevolution got under way, and that the Corn Laws (importrestrictions on grain), by raising the price of subsistence goods,raised money wages even though real wages failed to rise; themechanism of unequal exchange depends, as we have seen, onrelative levels of money wages. Instead of the workers being thebeneficiaries of unequal exchanges, the benefits went to landownersin the form of a ‘super-rent’.

This is an ingenious argument, but there are still criticisms to bemade. First, the conquest of world markets for cotton textiles,which provided a crucial opportunity for industrialization, was theresult of reduced prices, not high prices. The price cuts were madepossible by technical advances, and while Emmanuel can say thatthe Corn Laws held prices higher than they would have been

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otherwise, this still leaves technical advance, increased productivitystemming from mechanized production, as the main driving forceof the industrial revolution. High money wages followed thebreakthrough in development: they did not cause it. Second, it is notclear how the ‘super-rent’ accruing to the landlords fuelledeconomic development. In so far as it was saved, and became asource of capital accumulation, it should not have contributed to arelative advance in England if capital were internationally mobile(which it was not, to any great extent, at that date, but which thetheory requires). In so far as the extra revenue was spent, it createdextra local demand, though how much of landlords’ extra revenuewas spent on industrial products must be doubtful.

A second example is the colonies of European settlement.Emmanuel argued that the USA, Canada and Australia became rich,while Latin American countries did not, mainly because the socialconditions under which migration took place, together with theform of appropriation of land (which was relatively freely availablein the USA, by comparison with Latin America), favoured highwages, and this set the mechanisms of unequal exchange intooperation. South Africa, he argued, developed to a lesser extentprecisely because of the availability of cheap local labour. Tariffprotection, according to Emmanuel, played an essential role, butonly in excluding imported goods, especially industrial products,from the enlarged market created by high wages. This argument isattractive, since the relative success of the USA, Canada andAustralia is a major historical problem that calls out for a Marxistanalysis. There must, however, be doubts about this explanation.The major export products of the USA, Canada and Australia werealso produced in other parts of the world where wages were muchlower. Where countries with different wage levels produce the samecommodities and trade them on the world market, the high-wagecountry must have correspondingly higher levels of productivity (orlower profits). So, again, advances in productivity appear as thedriving force, with high wages the result rather than the cause ofdevelopment. High productivity in agriculture, in these cases, musthave been at least partly the result of favourable natural conditionsand plentiful land. In any case, US exports in the early stages were


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quite largely produced by cheap (slave) labour in the plantations ofthe southern states.

Emmanuel’s theory of unequal exchange can be viewed on twolevels. One could argue simply that he has filled a gap in the Marxistanalysis of the world economy by providing an analysis of thedetermination of international prices and by developing some of itsconsequences. This is my view of it, and it amounts to a substantialand important contribution. Emmanuel, however, made a strongerclaim.

Even if we agree that unequal exchange is only one of themechanisms whereby value is transferred from one group ofcountries to another, and that its direct effects account for onlya part of the difference in standards of living, I think it is possibleto state that unequal exchange is the elementary transfermechanism and that, as such, it enables the advanced countriesto begin and regularly give new emphasis to that unevenness ofdevelopment that sets in motion all the other mechanisms ofexploitation and fully explains the way that wealth isdistributed. (UE: 265)

As Emmanuel knew, the disparities in standards of living andproductivity between advanced and underdeveloped countries arefar larger than can be explained by unequal exchange in itself. Thereare many commodities that are produced in both groups ofcountries and there are enormous differences in productivitybetween countries.

We must therefore look at the connection between unequalexchange and the process of capitalist development in a broadersense. I have argued that Emmanuel’s arguments mainly come downto asserting that high wages are the key to development, and thatunequal exchange is important in permitting wage disparities toexist without corresponding inverse differences in profit rates. Highwages, we are told, promote development, first, by creating a largerlocal market and, second, by encouraging mechanization. There isconsiderable merit in both of these arguments, though it is not clearthat either would explain a cumulative growth of inequalitybetween countries. Cumulative divergence can, however, be

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explained if we follow Emmanuel in saying that wages will increasefurther in high-wage countries as an indirect, long delayed responseto industrialization and that they will remain low in low-wagecountries in the absence of this stimulus. His wage theory istherefore critical, and I have argued that it is plausible, but by nomeans beyond criticism.

There is a further major criticism of Emmanuel’s model. I havepresented it throughout in terms of a given division of activitiesbetween countries, or groups of countries, so high wages in aparticular country mean a correspondingly high price of productionfor its products. The objection is very simple: why should the high-wage, high-price products go on being produced in the high-wagecountries? Given free mobility of capital between countries whyshould any investment go to the high-wage countries at all? Forsome products the answer is clear: oil will be extracted from Alaska,the North Sea and so on because it is a scarce natural resource whichmust be extracted where it is found. But the advanced countriesspecialize mainly in the products which are least tied to the locationof natural resources: manufactured goods, especially hightechnology products whose raw material content is very smallrelative to total cost.

Emmanuel was aware of this problem, and made severalattempts to meet it. One attempt is to argue that there are so manydifferent products that ‘a high wage country can never find itself ina position where it cannot discover a specialization that . . . is freefrom competition on the part of the low wage countries’. ThusIndia, having taken up textiles, displacing Britain, could now moveinto producing textile machinery, and so on, but ‘if India were tospecialize one day in metallurgy and engineering . . . Britain wouldfind no difficulty in taking up [textiles] again’ (UE: 145-6). Thisargument is simply wrong. Countries do not choose what tospecialize in (and if they did, they could choose to do everything). InEmmanuel’s model, production is in the hands of competingcapitalist enterprises, which are free to move capital betweencountries, and are driven by the blind forces of competition toproduce wherever costs are lower. If they are free to produce allgoods in low-wage countries, with productivity and other costsequal, then they will do so. Emmanuel met this problem in a rather


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roundabout way: he recognized that, on his own arguments, theunderdeveloped countries would do better if they only tradedamongst them selves, and discussed whether they might decide,collectively, to do so, concluding that they would benefit by nottrading with high-wage countries and, instead, producing the goodsthat they (collectively) import at the moment. However, he thoughtthat this would involve setting up a state monopoly of foreign trade,while his theory assumes free competition. However, as I haveargued above, the real problem is to explain why free competitionitself should not produce the outcome without any need for aforeign trade monopoly (cf. Brewer 1985). Free competition clearlyhas not done so, but it remains to explain why.

His strongest argument is presented almost as an afterthought.The rich countries are benefiting from an existing specialization. Ifproduction is to start up in poor countries, it will have to suffer thehandicaps of an infant industry: ‘during this “acclimatization”period of the new branch, the ratio between the costs of the oldproducers and the new is not one that can be deduced from merelycalculating the effect of the difference in wages’ (UE: 151). Duringthis time, he says, the high-wage countries have time to ‘adjust theiraim’. These points are still rather doubtful, since the establishmentof ‘prices of production’, the theoretical basis of his wholeargument, requires a sufficient timespan for the mobility of capitalto take effect, and if it is difficult and costly for a poor country totake up a new branch of industry, it should be equally hard for ahigh-wage country. In practice, it is probable that the advancedcountries have more flexible economic structures, but this implies agreater technological capacity, not simply a difference in wages.

Emmanuel’s final argument does carry conviction: the period ofadaptation when a new branch of industry is introduced into acountry is ‘too long for the relatively short view taken by privatecapital, which under a competitive system is the exclusive agent ofthe introduction and establishment of the new branch’ (UE: 51).The foundation of the argument, then, comes down to this: to set upproduction in a new location takes longer than to alter the scale ofproduction in areas where a line of business is well established. Theperiod required is long enough for private capital to be unwilling todo the job, despite the profits it would reap at the end of the day. In

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theoretical terms, there is no doubt that this is a good argument (anda fairly well known argument too – it is the basic argument fortariffs to protect infant industries). It does not seem to me to beenough in itself to explain the pattern of development of the worldeconomy over the last two centuries, though it may be an importantpart of the explanation.

The first thing that has to be explained is the rapid developmentof areas of European settlement (the USA, Canada, etc.) in thenineteenth century. Private capital did flow into these areas, andestablished new industries there. Why were ‘infant industry’problems overcome in some places, while in low-wage areas, whereexport production should have been very profitable, the problemsof establishing new industries were insuperable? Second, inEmmanuel’s framework it does not matter what branches ofproduction the high-wage countries specialize in since they willbenefit from unequal exchange anyway. However, in practice, therich countries are those which have a large, modern industrialsector, even where they export primary products as well, while thepoor countries are those which have a large peasant or precapitalistagricultural sector. The ‘rich’ countries are also those that are‘advanced’ in a more general sense. This has to be explained, and Ido not believe that wage differences are the primary cause.

Lewis’s version of unequal exchange (1969: 17-22) makes aninteresting contrast with Emmanuel. In Lewis’s model, labour isthe only cost, and all countries produce food, which is traded, andhence has a single world price. Underdeveloped countries havemuch lower productivity in food production than advancedcountries, so they must have correspondingly lower wages. Othergoods are produced only in advanced countries (manufactures) oronly in underdeveloped countries (products of tropicalagriculture), so their prices must reflect the different wage levels inthose areas. Exchange in non-food goods is ‘unequal’ in a senserather like Emmanuel’s, and for very much the same reasons;prices reflect wage differences. In Lewis’s model, however, wagedifferences stem from productivity differences in the industrieswhich exist in both areas.


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9.6 SUMMARY

Emmanuel’s essential contribution was to extend the analysis ofprices of production (equilibrium prices in a capitalist system) to thedetermination of international prices, when capital is mobilebetween countries and labour is not. His analysis hinges on theexistence of a given, predetermined, pattern of internationalspecialization. (In this, as in other aspects of his work, Emmanuelhad much in common with dependency theorists.) The majorweakness in Emmanuel’s arguments is that he was unable to explainwhy all capital does not flow into low-wage areas. He argued thecontrary, that high wages attract capital (since markets are large)and induce the use of more mechanized methods of production. Ihave argued that this analysis can only be justified on rather specialassumptions.

APPENDIX TO CHAPTER 9

In this appendix, I will briefly set out the algebra of prices ofproduction, first with a single wage rate (the usual case) and thenwith different wages in different sectors (assumed to representdifferent countries). I will not use Emmanuel’s notation (UE,appendix V), which is based on that of Sraffa and seems to me to berather clumsy. Instead I will use my own notation based on that ofMorishima (1973) which is now fairly widely used. I will also alterEmmanuel’s model in some technical matters to simplify theexposition. I assume that all means of production are used up in asingle period of production, in order to avoid complicationsconnected with depreciation. Emmanuel did not make thissimplifying assumption, and disputed Sraffa’s treatment ofdepreciation (in a note added to the English edition). As far as I cansee, Emmanuel’s method is simply a different way of writing Sraffa’sequations. I also assume that the purchasing power of the wage isgiven as a list of physical quantities of different goods. This is onealternative considered by Emmanuel, who favoured a model inwhich wages are fixed as a quantity of the ‘money commodity’. Henoted that the commodities actually bought by workers depend onprices, so both of these devices are somewhat artificial.

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The basic problem is as follows: given the technical conditions ofproduction and the real wage, find a set of prices such that the rateof profit is the same in all industries. First, define some notation.Number all goods, 1 to n. Let aij be the quantity of good i required,as means of production, to produce one unit of good j, and lj theamount of labour. These coefficients are assumed to be fixed. Let thewage per hour of labour be w, and the prices (as yet unknown), p1,p2, . . ., pn. The wage, we assume, must be sufficient to buy quantitiesof goods given as b1, b2, . . ., bn, so

w = p1b1 + p2b2 + . . . + pnbn

If, say, the ith good is used only as a means of production, then bi =0, and if it is used only in consumption then aij = 0 for all j. Luxuries,goods which do not enter into the real wage and are not used asmeans of production, can be ignored. Wages are assumed to beadvanced at the beginning of the period of production (followingMarx and Emmanuel, but not Sraffa). Let r stand for the rate ofprofit (as yet unknown).

We can now write down the equations. Capital advanced (per unitof product) is the same as the cost of production, because capital issimply the sum the capitalist has to lay out in order to produce. Costplus profit must be equal to price, and the profit must equal thecapital advanced multiplied by the general rate of profit, so:

p1 = (p1a11 + . . . + pnan1 + wl1)(l + r) p2 = (p1a12 + . . . + pnan2 + wl2)(l + r)

pn = (p1a1n + . . . + pnann + wln)(l + r)

Incorporating the equation for the wage gives:

p1 = [p1(a11 + b1l1) + . . . + pn(an1 + bnl1)](l + r) p2 = [p1(a12 + b1l2) + . . . + pn(an2 + bnl2)](l + r)

pn = [p1(a1n + b1ln) + . . . + pn(ann + bnln)](l + r)

There are n equations with n + 1 unknowns (n prices and the rateof profit). However, only relative prices matter, so we can fix theprice of one good arbitrarily and solve for the remaining n − 1 prices


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and the rate of profit. Counting equations is a rather primitiveapproach; any mathematician knows that it ensures neither that asolution will exist nor that it will be unique. Fortunately, it can beshown that prices will indeed be determinate and positive, if the realwage is set at a level that permits a profit to be made at all.

The analysis can be written more compactly in matrix form. Let Abe the matrix with elements (aij), B the real wage vector; L the vectorof labour requirements and P the price vector. We can write theequations as

P = P(A + BL) (l + r)

where BL is the matrix (not the scalar) product. This is a (slightly)disguised form of a standard problem, finding the eigenvalues andcorresponding eigenvectors of a matrix.

Now for Emmanuel’s main subject: pricing with different wagesin different sectors. Let wj be the wage in the jth sector,corresponding to a real wage vector Bj = (b1j, . . ., bnj). The equationfor good j must now be written as

pj = [p1(a1j + b1j lj) + . . . + pn(anj + bnjlj)](l + r)

The structure of the equations is not changed in any essential way.There is, of course, no need to have a different wage in each sector;there could be just two wages for two countries.

Notice that changed bij coefficients enter into the equations inmuch the same way as a change in methods of production. Anincreased real wage in any sector is equivalent to a cost-increasingchange in technical coefficients. It can be shown (e.g. Himmelweit1974) that any change which reduces costs (at the prices rulingbefore the change) will increase the rate of profit, and converselythat cost increases reduce the profit rate. Hence an increase in wagesin any sector reduces profits, and low wages anywhere raise profits.

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10

Classes and Politics in the Third World

It is almost an axiom of Marxism that international relations(political or economic) can only be understood in terms of theinternal structure of the states concerned, conceptualized byMarxists in terms of classes and modes of production. In the 1960sand 1970s an upsurge of interest in Marxist theory and arediscovery of the Marxist classics provoked a series of debatesabout the appropriate way to analyse social and economicstructures in underdeveloped countries, surveyed to the mid-seventies (the most active period of debate) by Foster-Carter (1976).I shall concentrate on those aspects of the debate relevant to theoriesof imperialism.

Advanced capitalist countries all have a rather similar structure;‘the country that is more developed industrially only shows, to theless developed, the image of its own future’ (Marx, Capital I: 91).The transition to fully developed capitalism, however, takes verydifferent forms in different places, depending on the previous stageof development, the pre-existing mode of production, on whether itcomes early or late in the development of capitalism on a worldscale, and so on. Class structures and class alliances are particularlycomplex during the transition, now under way in the Third World.Study of classes and politics in the Third World must therefore takethe form of case studies; there is no sign of any general theory tocover all cases. Section 10.1 surveys the Marxist tradition and theidea of the articulation of modes of production, developed by P. P.Rey. Section 10.2 describes debates over Indian agriculture, and10.3 to 10.5 outline three influential case studies of African


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societies: G. Arrighi on the difference between southern andtropical Africa, Rey (again) on Congo-Brazzaville, and C. Leys onthe development of a national bourgeoisie in Kenya. Finally, 10.6presents a very different, non-Marxist, view of the relation betweenimperialism and Third World politics in the work of J. Gallagherand R. Robinson.

10.1 MODES OF PRODUCTION

Until recently, most Marxists thought of modes of production assuccessive stages in the evolution of human society, following eachother in a predestined order. In a transitional period, the old modedecays, while the new mode first emerges within the previoussystem, and then replaces it. The development of new forms oforganization actively under-mines the old and accelerates theirdecay. At some stage, a revolution reconstructs the political andlegal superstructures to fit the needs of the new mode of production.The relation between the two modes is therefore one ofcontradiction, and the new ruling class establishes itself throughclass struggles in which it is irreconcilably opposed to the old order.Each nation must go through the sequence of stages, thoughexternal influences may accelerate or slow the process, or evenallow a stage to be skipped. This brief summary is, of course, acaricature, but I think it brings out the key ideas that underlie moresophisticated accounts. There is some warrant for it in Marx’s ownwritings (especially the Preface to the Critique of PoliticalEconomy).

Trotsky had a somewhat different view. Although his thinkingremained in essence bounded by a ‘stages’ perspective, he stressedthe importance of (relative) backwardness, and argued that thestructure of societies that started to develop late was not the sameas those that had led the way. This thesis, as applied to Russia, isscattered through his works (see Knei-Paz 1978, for Trotsky’s viewsand for detailed references; also Szymanski 1981: 55). Russia, heargued, came under pressure, military and economic, from the moreadvanced West, and the Russian state, reacting to this pressure,took the initiative in promoting both industrial development and(limited) measures of social and administrative modernization

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designed to increase the military efficiency of the state. The statemachine had a larger, and the bourgeoisie a smaller, relative weightthan in the countries of western Europe, and there were massivedisparities between the industrial cities and the impoverished andbackward countryside. This is summarized in the phrase ‘unevenand combined development’, meaning that nations, sectors, andareas develop at different rates, but do not do so in isolation fromeach other. What is distinctive about Trotsky’s view is his emphasison the role of the state. As it stands it is difficult to think of manyareas except Russia, Japan, and parts of south-east Europe to whichit is relevant; in other areas national states went under whenconfronted with western pressure. Ex-colonial territoriesfrequently exhibit a rather similar enlarged state apparatus, thoughthey have reached this condition by a different route.

The classic account of a transition from feudalism to capitalismis Lenin’s The Development of Capitalism in Russia (1974, firstpublished 1899). Russia was in the middle of the transition, andLenin, grappling with the problems of political strategy in arelatively backward country, looked in detail at the process oftransition and at the transitional forms created. The issues hefocused on are substantially those that concern Marxists in theunderdeveloped world today: the prospects for capitalistdevelopment and the class struggles and possible class alliancesinherent in the situation.

Lenin identified four main processes at work in the countryside.First, commodity production and exchange were emerging throughthe progressive separation of successive ‘industrial’ activities fromagriculture. These activities formed distinct industries, perhapsorganized on a craft basis but rapidly penetrated by capitalistrelations of production, linked to each other and to agriculture byexchange (recall Marx’s similar analysis). Second, there was aprogressive differentiation of the peasantry, as the ‘middlepeasantry’ of relatively self-sufficient family units broke down intoa rural bourgeoisie (the kulaks) and a rural proletariat. Third, therole of the landlord was transformed as the (feudal) corvée orlabour-service system was supplanted by capitalist agriculturebased on the employment of wage-labour. Capitalist agricultureemerged by two routes: the rise of a rural bourgeoisie from thepeasantry, and the conversion of the landlords’ economy into


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capitalist estates. Finally, there was a developing pattern ofspecialization within agriculture itself, and thus a development ofcommodity exchange within agriculture as well as betweenagriculture and industry.

In this process a great variety of transitional forms were created;‘the systems mentioned are actually interwoven in the most variedand fantastic fashion’ (Lenin 1974: 197). Lenin was able to makesense of them only by setting them in the context of a process oftransition from one fairly well-defined system (feudalism) toanother (capitalism). I suspect that at least part of the debate aboutcontemporary underdeveloped countries is bedevilled by a desire tolink immediately observable features of society (the ‘fantastic form’that Lenin described) directly to the defining features of variousmodes of production without setting them adequately in thecontext of a historical process.

The classical Marxist analysis has had considerable success inanalysing European history, when applied in a creative andundogmatic way. Whether it can be used with the same success indealing with non-European societies is a matter of dispute. In a‘stages’ perspective, one must either say that underdevelopedcountries are pre-capitalist, that they are capitalist, or that they arein transition (thus implying that they are becoming capitalist). In theorthodox Marxist view, the capitalist stage has three maincharacteristics: first, commodity production, second, the relationbetween wage-labour and capital, and third, the pressure toaccumulate and to introduce new methods of production. Inunderdeveloped countries the penetration of commodityproduction went ahead rapidly but, for a long time, wage-labourand best practice levels of productivity were confined to smallsectors. Either these countries are not becoming capitalist (in whichcase what are they?) or capitalism has quite different laws of motionin underdeveloped areas (in which case, what use is the concept ofcapitalism?). Some attempts to solve these problems have alreadybeen discussed.

Frank and Wallerstein took the most drastic line. Capitalism,they argued, is a world system, defined in terms of production forthe world market, whether wage-labour is employed or not. This isa fundamental shift of definition. Its laws of motion, too, are quiteunlike those analysed by Marx. Capitalism does not promote


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general development; it promotes the development of some areas atthe expense of others. I have criticized Frank and Wallerstein for thelack of any well-worked-out theoretical analysis to back up theirsloganistic generalizations. Amin’s analysis is an advance, usingmore traditional concepts of modes of production in an overallframework derived from dependency theory; it is open to criticism,but on other grounds.

An alternative to Frank and Wallersein, more faithful to Marx, isto treat the wage relation as the defining feature of capitalism, asLaclau suggested (section 8.3 above), and argue that differentmodes of production can coexist within a single society, eitherpermanently (abandoning the ‘stages’ perspective) or over a verylong-drawn-out transition. Various phrases have been used in thiscontext; one can talk of a ‘conservation-dissolution’ relation(between capitalism and the subordinated mode), of a ‘blocked’transition (preserving a ‘stages’ view, at least verbally) or, asBettelheim does in another context, of a transition ‘between’ twostages without implying movement in one direction or another. Allthese devices seem to be essentially semantic; what matters is thesubstance of the analysis.

The case for focusing on the relation between the directproducers and their exploiters, and thus on the wage relation as thedefining characteristic of capitalism, was put most forcefully byBrenner (1977), in work on the origins of capitalism in Europe (seealso Brenner 1985, and discussion reported in Aston and Philpin1985). He argued that the production of relative surplus value andthe tendency to increase productivity differentiates capitalism fromall previous modes of production:

The logic of [Wallerstein’s] position . . . is that capitalistunderdevelopment is as much the cause of capitalistdevelopment, as capitalist development is the cause of capitalistunderdevelopment. Such an argument is not compatible withthe view of capitalist economic development as a function of thetendency towards capital accumulation via innovation, builtinto a historically developed structure of class relations of freewage labour. For from this vantage point, neither economicdevelopment nor underdevelopment are directly dependentupon, caused by, one another. Each is the product of a specific


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evolution of class relations, in part determined historically‘outside’ capitalism, in relationship with non-capitalist modes.. . . Wallerstein resorts to the position that both . . . are essentiallythe result of a process of transfer of surplus. . . . He must thusend up by . . . ignoring any inherent tendency of capitalism todevelop the productive forces. (Brenner 1977: 60-1)

The existence of free wage-labour matters for two reasons. First,because only in a system of free labour can labour be reallocatedfrom one task to another and gathered into ever larger and morecomplex productive organizations. Capital can only be genuinelymobile where it can gather labour and means of production freelyin the market. Second, and perhaps more important, in a wage-labour system all the needs of reproduction have to be bought in themarket and competition then acquires coercive force. Anyenterprise that fails to keep up with socially established levels ofproductivity is driven out of business; the process of concentrationand centralization, an essential part of the development ofcapitalism, thus depends on the wage relation. Labour-savinginnovation allows costs to be cut by making workers redundant, anoption not open in feudal systems in which peasants are tied to aparticular estate. Competition forces capitalists to minimize costs,constantly recreating a mobile reserve army of labour.

In a feudal system, the needs of reproduction are met by peasantplots, so the demesne product, which may be sold on the market, isall surplus product. A feudal lord, maximizing short-run profit, willattempt to restrict peasants’ mobility (to keep them under hiscontrol) and to reduce the land and labour time devoted to thepeasants’ plots, not by increasing productivity, but by increasingabsolute surplus value, even to the point where the long-runreproduction of the system is threatened. An extension of marketopportunities can even intensify feudal exploitation and promoteregression in the forces of production. Brenner had a tellingexample; in the Poland of the ‘second serfdom’ (one of Wallerstein’sfavourite examples), ‘despite the orientation of the entire economyto exports, it could send out at best 5 per cent to 7 per cent of its totalgrain produce’ (Brenner 1977: 69-70). Peasant plots were moreproductive than demesnes, and could generate a larger marketablesurplus per acre, but they were ruthlessly cut down to expand the


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lord’s profits. Here profitability (for the rulers) generatedregression. A switch to wage-labour would only be profitable forthe lords in the very long run, if at all. Wage-labour was only usedwhere serfdom had decayed beyond possibility of restoration.

An alternative system in agriculture is small peasantproprietorship. Here again the market lacks coercive force ifpeasants can produce their own subsistence (cf. Luxemburg), andhere again the attachment of producers to the means of productioninhibits flexibility and thus technological advance. England was theone place in Europe where serfdom had been eliminated withoutsmall peasant proprietorship taking its place. There are also cases inwhich the producers are wholly dependent on the market for theirsubsistence, without labour-power, as such, becoming acommodity. Peasant producers of industrial raw materials are anexample. In these cases fully capitalist production can penetraterelatively easily.

The mode of production, defined by the relation between the directproducers and the owners of the means of production, is thus not apurely formal characteristic of the social system, nor does it defineclasses opposed to each other in purely distributive terms. It is ofcrucial importance in determining the evolution of the forces ofproduction, and in determining development and underdevelopment.Brenner displayed the mechanisms linking structural features of themode of production to its dynamics, and thus demonstrated theirrelevance rather than merely asserting it. Development andunderdevelopment are the product of class structures which arethemselves the outcome of a historical process of development thatcannot be analysed in the abstract.

Perhaps the most important and sophisticated discussion of therole of modes of production is by P. P. Rey. It predates Brenner’swork, and is more directly aimed at the analysis of contemporaryunderdeveloped countries; the rest of this section will be devoted toa discussion of Rey’s theoretical framework, while his case study ofCongo-Brazzaville will be dealt with in section 10.4. InL’articulation des modes de production, which makes up the bulkof Les alliances de classes (Rey 1973, cited below as Alliances), Reyset out his main theoretical perspective and discussed the transitionfrom capitalism to feudalism in Europe. Colonialisme, neocolonialisme et transition au capitalisme (Rey 1971, cited below as


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Colonialisme) is a detailed study of the transition from the ‘lineagemode of production’ to capitalism in Congo-Brazzaville.Capitalisme negrier (Le Bris, Rey and Samuel 1976) is a collectionof studies of migration by African workers, both within Africa andbetween Africa and France. The ‘theoretical introduction’ by Rey isa good concise summary of his views. One of the starting points forRey’s work was a debate among Marxist anthropologists about thenature of social relations in the part of Africa which Rey studied; forthese debates see Meillassoux (1964), Terray (1972) and Rey(1975), as well as Colonialisme. There are useful discussions ofRey’s work in English in articles by Bradby (1975) and Foster-Carter (1978). On the notion of an ‘articulation’ of modes ofproduction, see Wolpe (1980) and Miles (1987).

Rey’s starting point was the distinction between a mode ofproduction and a social formation, drawn by Althusser and Balibar.The best statement of these concepts and their interrelations is to befound in Balibar’s essay The basic concepts of historicalmaterialism’ (Althusser and Balibar 1970, part III), and in theglossary in the English translation of the same book. Put simply,they insisted that a mode of production (capitalism, feudalism, etc.)is an abstract, timeless concept, defined by a particular, exactlyspecified, relation connecting two classes (except, of course, forclassless modes). A social formation is also a conceptualconstruction, but of a more concrete kind; a real society can bethought of as a social formation. (There are some trickyphilosophical issues here, concerning the relation between abstractconcepts and reality, which I will not pursue; cf. Ruccio and Simon1986.) Both mode of production and social formation must beanalysed from the point of view of their reproduction, that is to saythat their different components must interlock to produce afunctioning system which can maintain itself in existence, at leastfor a time. For a critical discussion of these concepts, see Cutler,Hindess, Hirst and Hussain (1977).

What is most relevant in understanding Rey’s work is the ideathat a social formation (like Laclau’s ‘economic system’) maycontain more than one mode of production. Althusser and Balibarinsisted that one mode of production dominates, defining adominant or ruling class, except during brief periods of transition.Rey’s concept of the articulation of modes of production is firmly


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set in a classical Marxist analysis of transition, analysed inAlthusserian style. As noted above, the classical Marxists conceivedof modes of production as stages of development which succeedeach other in turn. Since one mode cannot replace anotherovernight, there must be a long process of transition in which the oldmode dominates at first, while allowing the new to grow up, thenthe new mode comes to dominate, while the old persists for a furtherperiod. Rey’s originality is in insisting that this process takes so longthat transition is the normal state of affairs, and analysing theprocess with the rigour usual in the study of ‘pure’ modes.

In a transitional social formation the two modes of productionare not independent of each other, just sitting side by side. There isan interaction, in which each affects the workings of the other, sothe evolution of a transitional social formation cannot beunderstood by analysing the logic of one mode of production inisolation. The two modes are in contradiction, in the sense that onewill replace the other but, during the transition, each must bereproduced, so the conditions of their reproduction must becompatible. This Rey called the ‘articulation’ of two modes.

In all the cases Rey dealt with, the expanding mode is capitalism.Like Luxemburg he insisted that capitalism has an inherenttendency to expand at the expense of the precapitalist societies itfinds around itself. This insistence on what Foster-Carter (1978)called the ‘homofience’ of capitalism (literally, ‘having the sameeffect’) put him firmly in the classical Marxist tradition and led himto reject any explanation of underdevelopment in terms ofrestrictive behaviour by capitalists, as proposed by Baran andFrank:

Let us cease to reproach capitalism with the one crime that it hasnot committed, that it could not think of committing,constrained as it is by its own laws always to enlarge the scale ofproduction. Let us keep firmly in mind that all the bourgeoisiesof the world burn with desire to develop the ‘underdeveloped’countries. (Alliances: 16)

Why then have some areas advanced, while others have not? Ifcapitalism by itself has the same effect everywhere, the difference


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must be in the other half of the articulation, in the pre-capitalistmodes that are the ‘medium and soil’ (in Luxemburg’s words) ofcapitalist development. Rey criticized Luxemburg for not taking theinternal workings of these modes seriously. Capitalism prosperedwhere it succeeded feudalism, while ‘generally speaking, non-Western countries, apart from Japan, have shown themselves andstill show themselves to be wretched environments for thedevelopment of capitalist relations of production’ (Alliances: 11).

Rey proceeded by considering the conditions required for theexpanded reproduction of capital. The first is a class of free wage-labourers, so the articulation with the pre-capitalist mode must besuch as to exclude a growing section of the population from pre-capitalist production (or at least to ensure that they have to spend apart of their time or a stage in their lives working for a wage).Capitalism is relatively slow to establish itself in agriculture,especially in the production of basic foods. The capitalist sectormust, therefore, obtain means of subsistence for its workers bytrading with pre-capitalist agricultural producers. In the heartlandsof capitalism, where it succeeded feudalism as the dominant mode,these needs were met by the expulsion of peasants and the sale of asurplus product extracted as rent, as Marx showed in his account ofprimitive accumulation.

In the rest of the world, however, pre-capitalist modes did notevolve naturally to meet the needs of capitalism, so capitalistrelations of production could not arise from within. These areascould (and did) engage in exchange, and were drawn into the worldmarket, but exchange reinforced the hold of pre-capitalist rulingclasses and strengthened resistance to the implantation of capitalistrelations of production. This is really the most crucial part of Rey’sargument; he argued it in detail only for a particular area in Congo-Brazzaville (section 10.4), and it is not at all clear that the argumentgeneralizes to other areas.

Since the preconditions for capitalist production did not arisenaturally in most parts of the world, they were imposed by externalforce. To open up these areas for capital, it was necessary to displacethe existing ruling class and reorganize indigenous societies. Directmilitary and administrative coercion was used to recruit workersand to compel villagers to sell cash crops (especially food crops Reycalled this system of administrative coercion the colonial mode of


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production. Once the pre-capitalist framework has beentransformed to fit the needs of capital, it can be left to itself.Capitalist reproduction and growth can be assured by economicmeans and by the local state: the ‘neo-colonial’ pattern of theunderdeveloped world today. Formal decolonization is no threat tothe economic interests of capital. The expansion of capitalistrelations of production is, however, hindered by the persistence, ina modified form, of pre-existing modes, since capitalist mechanismscannot, for a long time, provide for reproduction on their own.

Rey deduced his central political conclusions from this account.Capitalism and the restructured pre-capitalist modes of productionneed each other and sustain each other. It is therefore impossible totry to abolish pre-capitalist forms of oppression without at the sametime seeking to overthrow capitalism, while anti-capitalistrevolutions (Russia, China) have been able to abolish these archaicrestrictions in a very short space of time.

On a world scale, the development of capitalism went ahead inpreviously feudal areas, but was blocked elsewhere. Capitalist andnon-capitalist areas were linked by exchange, but pre-capitalistsocieties did not respond well to market signals, since exchangedoes not alter the basic relations of production and does not provideany strong stimulus to a more rational organization of production.There were thus good reasons for capitalist expansion into non-capitalist areas, but the means were lacking. The blockage wasbroken when central capitalism reached the stage of finance capital,according to Rey, because it was only at this stage that capital couldimpose capitalist relations of production from the outside. This partof the argument is not very clear. European states did, in fact,reorganize the mode of production in colonial territories muchearlier (e.g. Latin America from the sixteenth century), but theyimposed pre-capitalist, not capitalist, modes of production. Rey’swhole chronology is geared to Africa. The epoch of finance capitalis thus also the age of imperialism and colonial conquest, but forreasons rather different from those proposed by Lenin. (SeeMichalet, 1976, for a reinterpretation of Lenin on similar lines;Michalet and Rey differ on most other points.)

Gathering the story together, it goes as follows. Capitalismemerged in previously feudal areas, and went through a wholeprocess of development there (the capitalism feudalism


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articulation), with a corresponding, massive, development of theforces of production; the rest of the world was drawn into relationsof exchange without the transformation of relations or forces ofproduction. The rise of finance capital was the signal for forcibleconquest and transformation of ‘underdeveloped’ areas, followed(in the end) by decolonization, leaving capitalist relations ofproduction dominant, but with development still retarded by thepersistence of pre-capitalist modes alongside capitalism.

Rey drew heavily on the classical Marxists. Like RosaLuxemburg, he emphasized the role of coercion in the expansion ofcapitalist relations of production, but he distinguished between thetransition from feudalism to capitalism (coercion by the feudalruling class itself) and other transitions (coercion from outside), andalso between the transformation of a ‘natural economy’ into acommodityproducing system (which need not involve coercion)and the transformation of relations of production by the creation ofa proletariat. His argument has obvious (and acknowledged) rootsin Marx’s treatment of primitive accumulation, of the Asiatic modeof production, and of merchant capital. The aspects of Marx’s workthat Rey built on had been substantially neglected in the interveningperiod, so to point to these roots in Marx is not to decry Rey’scontribution. More important, he provided an explanation for a‘neocolonial’ stage following colonialism, connecting the presentstage of development to its predecessors and to a coherent accountof the history of capitalism.

10.2 INDIAN DEBATES

At about the same time as the Frank-Laclau debate (about LatinAmerica), and the work of Rey, Arrighi and others on Africa, therewas a debate in India over rather similar ground. The point at issuewas ostensibly whether Indian agriculture should be described ascapitalist, a rather uninteresting semantic question, but the realquestion was whether the backwardness of Indian agriculture wascaused by capitalism or by the absence of capitalist relations ofproduction. Rudra (1969, 1970) provoked the debate with a rathernaive statistical survey of large farms in the Punjab, from which he


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concluded that there was no clearly defined class of capitalistfarmers. Patnaik (1971 a, b; 1972) criticized this conclusion, andChattopadhyay (1972a, b) criticized both for being insufficientlyMarxist. A general melée ensued (Banaji 1972, 1977; Frank 1973;Sau 1973; Alavi 1975). The debate has been surveyed byMcEachern (1976) and Foster-Carter (1976).

There was general agreement that the ‘green revolution’ (theintroduction of high-yielding varieties of cereals) was associatedwith increased differentiation among the peasants, since richfarmers were better able to pay for the necessary irrigation andfertilizers. All the participants in the debate (except Rudra) seem tohave agreed that this represented a development of capitalism inagriculture. The point at issue was whether agriculture in India hadbeen capitalist during the colonial (pre-1949) period (asChattopadhyay argued), making the ‘green revolution’ a stage ofdevelopment within capitalism, or whether agriculture had notpreviously been capitalist (as Patnaik and others claimed). Thebasic facts were common ground: the agricultural sector had beenproducing for the market for a long time, a fraction (30-40 per cent)of the rural population consisted of agricultural wage-labourers,but development in methods of production had been very slow, withlittle reinvestment of surplus. (See Alavi 1975, for a useful review ofthe facts and their historical context.)

It is convenient to start with Chattopadhyay (1972a, b), ignoringthe chronological order of debate. He argued that Indianagriculture had long been substantially capitalist, though still intransition, since commodity production and wage-labourconstitute capitalism. India was in substantially the same positionas Russia in Lenin’s time. The slow pace of development was not aproblem (for the theory) since the early development of capitalismhad been slow everywhere else as well. In short, he restated atraditional Marxist analysis in which each nation, in its turn, passesthrough substantially the same stages of development. McEachern(1976) generally supported Chattopadhyay’s diagnosis of India interms of a classical Marxist analysis of transition, with moreemphasis on the external dimension. He was unwilling to acceptany idea that modes of production may be ‘combined’, exceptduring relatively brief periods of transition, and argued that


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surviving pre-capitalist forms in India conceal the real (capitalist)relations of production.

Patnaik (1971a, b; 1972), with Sau (1973) and Banaji (1972,1977) also distinguished apparent forms and underlying reality, butto support the opposite conclusion. The existence of wage-labour,she claimed, is not conclusive evidence that Indian agriculture wascapitalist, since workers were not really free, given the lack ofemployment opportunities. Further, one should not speak ofcapitalism unless the surplus is productively invested within thesame sector or even the same enterprise. There are two issues here:whether to define capitalism in terms of accumulation, the thirdmajor characteristic of capitalism in the classical Marxist view(commodity production and wage-labour are the other two), andwhether the definition applies at the level of a firm or farm, or atsome higher level. Brenner (discussed above) argued in theEuropean context that the introduction of capitalist relations ofproduction led to capitalist development and increasedproductivity; the Indian debate hinged on the apparent failure ofthis connection in India. Frank (1973) remarked that the surpluswas indeed invested, in England.

The question of definition is semantic. What matters is todiscover the necessary and sufficient conditions for accumulation totake place, and the forms it takes. Patnaik had an explanation forthe stagnation of agriculture in the colonial period. Industry failedto develop because of British competition, backed by the colonialstate, so markets for agricultural products were stagnant.Agriculture was exploited by ‘antediluvian forms of capital’(merchant capital, usury) and ‘generalized commodity production. . . led to a prolonged disintegration of the pre-capitalist modewithout its reconstitution on a capitalist basis’ (Patnaik 1972: A-149). Independence led to (state-sponsored) industrialdevelopment, and hence to scope for investment in agriculture.Patnaik, then, argued that Indian agriculture, in the colonial period,had not been capitalist, but she did not offer any definite alternativeclassification.

Banaji (1972) and Alavi (1975) proposed a concept of a ‘colonialmode of production’ to cover colonial India and other colonialterritories. Banaji subsequently abandoned the idea, so I will


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concentrate on Alavi’s arguments. (It is worth noting that thisconcept is not the same as Rey’s ‘colonial mode’ though there arecommon features.) Alavi’s main idea was to restore the classicalconception of modes of production as stages of development. Heargued that colonial India was neither feudal (since there waswidespread commodity production) nor capitalist (since there waslittle accumulation). He was unwilling to talk of a combination ofmodes, because different modes of production can only coexist in astate of contradiction, and no one has ‘demonstrated that there isany conflict between the rural “capitalist” class and the “feudal”landlords’. (He did not, apparently, notice that one could say muchthe same of early modern England.) Colonialism does notcorrespond in any simple way to a capitalist or to a feudal stage, soit must be something else, a ‘colonial’ stage. His colonial mode ischaracterized by colonial bourgeois state power, internaldisarticulation, generalized commodity production, a transfer ofsurplus to the metropolis, and a lack of accumulation (cf. Baran’s‘typical’ underdeveloped country or Amin’s peripheral capitalism).Alavi is entitled to call this a mode of production, if he chooses, butit is not remotely like any other Marxist concept of a mode ofproduction. It has no defining relation of production, and it doesnot define any specific class opposition. It is difficult to see what canbe gained by calling it a mode of production.

Banaji (1977) developed the idea that capitalism is identifiedwith capital accumulation. Modes of production are ‘a definitetotality of historical laws of motion’ which must be discovered byanalysis, and cannot be reduced to ‘simple abstractions’ (such ascommodity production, or wage-labour). Any given mode ofproduction may be compatible with a variety of ‘forms ofexploitation’. How then are the ‘laws of motion’ of the variousmodes to be distinguished? They seem to amount to different(socially determined) motivations or purposes on the part of thosewho control production. Capitalism is production directed toaccumulation, feudalism is directed to meeting the (sociallydetermined) luxury consumption needs of the landlords, and the‘patriarchal-peasant’ mode is governed by the subsistence needs ofthe peasant family. The latifundias of Latin America are, he argued,feudal estates, while superficially similar production units in


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plantation agriculture are capitalist, since they are orientated to theaccumulation of capital, albeit ‘only in the long run, as a relativelyslow and mainly sporadic tendency dominated by feudal modes ofconsumption’ (Banaji 1977: 16); I find this distinction hard tograsp. Although there are many incidental felicities in thisprovocative article (such as the demonstration that wage-labourwas as common in thirteenth-century England as in present dayrural India), the main argument seems to remain very much up inthe air. Where do ‘laws of motion’ come from? The politicaleconomy of consumption and the social bases of motivation areimportant and neglected topics, but they must be explained, notintroduced as a deus ex machina to define different modes ofproduction. To trace them back to their roots in relativelypermanent features of social structure would, I suspect, lead backto relations of production.

Two major issues emerge from the Indian debates. The first is therole of ‘forms of exploitation’ (wage-labour, serfdom, etc.). Manywriters have pointed out that superficial or juridical relations maybe misleading; a nominally independent peasant, for example, maydepend on advances from a merchant and receive a price for theproduct that is more like a piece-rate wage than a genuine marketprice. This is no problem; Marxists commonly distinguish betweenjuridical and real relations. It is a quite different matter to claim, forexample, that a slave plantation can be capitalist, when the slavesreally are slaves who can be bought and sold in slave markets. Thereare strong reasons, explained by Brenner, for thinking that (real, notjuridical) relations of production are important. The secondquestion concerns the appropriate level of analysis: world system,nation state, unit of production, or whatever. This is a non-problem.There can be no question of choosing to analyse at one level andignore the others; any adequate account of the world system mustincorporate them all, and their interrelations. The only problem issemantic: to what kinds of entities can the adjectives capitalist,feudal, and so on be attached? Can one talk of a capitalist farm, ora feudal nation? In isolation, these are meaningless questions.


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10.3 ARRIGHI

Some of the most original work on the persistence andtransformation of pre-capitalist modes of production emerged fromstudies of Africa, perhaps because capitalism penetrated much ofAfrica more recently than most other parts of the world. I shalldiscuss three writers on Africa: Arrighi, Rey, and Leys, starting withGiovanni Arrighi. His most important contributions, some writtenin collaboration with John Saul, are collected in Essays on thePolitical Economy of Africa (Arrighi and Saul 1973, cited below asEPEA; page references are to this collection, though the originalarticles are listed in the bibliography). The best known of thesepapers is ‘Labour supplies in historical perspective: a study of theproletarianisation of the African peasantry in Rhodesia’, which isrightly regarded as a classic.

Arrighi studied the penetration of capitalism in Africa south ofthe Sahara. He argued that this area divides into two regions withvery different histories: tropical Africa and southern Africa. In hisanalysis of both areas the implicit (sometimes fairly explicit) basisis an account of the articulation of the indigenous modes ofproduction with capitalism. From Arrighi’s description, it is clearthat he regarded the indigenous societies of tropical and SouthAfrica as essentially primitive-communal:

The vast majority of the population of tropical Africa consistsof independent producers. . . . Individuals can customarilyacquire land through tribal or kinship rights. Onlycomparatively rarely is land acquired or disposed of throughpurchase or sale. . . . Market exchanges were . . . peripheral. . . .Feudal elements, landowning classes and national bourgeoisiesare either nonexistent or not sufficiently significant, politicallyand/or economically, to constitute the power base of the state.(EPEA: 13-14, 141)

The indigenous peasantry has, however, been very responsive tomarket stimuli, supplying goods and working for wages wheneverit paid them to (though not otherwise). In contrast to Rey, Arrighidid not see the indigenous mode of production as a substantial


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obstacle to capitalist development. The lagging development oftropical Africa is due to the failure of capitalist development toexpand the demand for labour-power and for the products of pre-capitalist agriculture, not to a deficient supply of either.

The main characteristics of tropical Africa derive from thelimited extent to which capitalism has supplanted precapitalistmodes of production. In the earlier stages of capitalist penetrationthe main demand was for unskilled labour, and was not met by thecreation of a distinct proletariat, but by migrant labourers who kepta foothold in the pre-capitalist mode of production, where theirfamilies could produce a large part of their subsistence and wherereciprocal obligations guaranteed the individual’s security in illnessand old age. A low-wage, low-skill pattern developed. Arrighiargued that this migrant labour force was part of the peasantry, nota proletariat (as subsistence was guaranteed in the pre-capitalistsector) so there was a capitalist mode of production without anysubstantial proletarian class.

Modern international corporations, however, use capital-intensive methods of production requiring a smaller number ofsemi-skilled workers. To make it worthwhile to train workers evenfor semi-skilled work requires a stabilization of the labour force,which requires, in turn, a substantial increase in wages above themigrant level, to induce workers to sever their ties with thetraditional economy. At the same time, the state apparatus, takenover substantially unaltered from the colonial powers, supports arelatively well paid élite and sub-élite. These groups, together,Arrighi called a ‘labour aristocracy’ (while admitting some uneaseabout the term). In the absence of any substantial indigenousbourgeoisie or landowning class, this labour aristocracy forms thepolitical basis of the state (cf. Leys’s account, section 10.5). Statepolicies understandably favour relatively high wages, whichencourage the use of capital-intensive methods of production andcorrespondingly low levels of employment.

The result is ‘growth without development’, in which the (small)modern sector offers relatively few opportunities of employment,and buys relatively little from the traditional sector, since therelatively highly paid proletariat proper spends its income largelyon the products of the modern sector or on imports. The highdemand for imports, together with the lack of a substantial capital


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goods sector, leads to balance of payments constraints which inhibitany acceleration of growth in the modern capitalist sector, while thepre-capitalist peasant sector stagnates for want of any stimulusfrom demand. The relative impoverishment of the peasantry maylead to differentiation and the formation of a kulak class ofcapitalist farmers, but the slow growth of demand for agriculturalproducts ‘restrains the incentive for, and financial ability of, theemerging kulaks to expand wage employment so that . . . it tends toproduce an impoverished peasantry without fostering itsabsorption in capitalist agriculture’ (EPEA: 126).

This formulation is strikingly similar to Patnaik’s (section 10.2)and to the ‘dependency theorists’. Arrighi was mainly concernedwith the effects of a particular pattern of economic development onclass structure, and therefore did not explain in detail why foreigninvestment should take the particular form he described. Inaddition, he assumed almost without discussion that there was noscope for small-scale, locally based development; Leys’s discussionof the formation of an indigenous bourgeoisie in Kenya (section10.5) suggests that the prospects for development may be betterthan Arrighi thought. (See also chapter 11 below, for more generaldiscussion of capitalist development in the Third World.)

De Janvry’s (1981) analysis of agriculture and development inLatin America makes an interesting contrast with Arrighi’sdescription of tropical Africa. De Janvry argued that there was analliance between the industrial bourgeoisie and the landowners inmost Latin American states. Protection raises the price of industrialproducts, while a number of policy measures (including foodimports) keep down the prices of staple foodstuffs, allowing wagesto be kept down. Food production is unprofitable, and is left to thepeasantry, while large estates concentrate on non-food agriculturalexports. Policy is designed to support the export agriculture sector,in order to keep the support of the landlords and bolster the balanceof payments; the export sector also benefits from cheap food andlow wages. Investment in food production is unprofitable, so foodproduction has grown slowly, storing up trouble for the future. Theclass structure is different from that in Africa (wages are kept low,not high, because of the power of the local bourgeoisie and thelanded élite), but the results are rather similar: the peasant sectorloses out in both cases, and agricultural growth suffers.


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Southern Africa, by contrast, is distinguished by the much largerscale of capitalist penetration in the nineteenth and early twentiethcenturies (the result of mineral discoveries) and also by the presenceof a substantial settler-colonial bourgeoisie drawn by theopportunities (real and imagined) created by this earlier boom. Thedifference between tropical and southern Africa thus arises from thedifferent opportunities that capital found in the two areas, not fromany important difference in the pre-capitalist mode of production.Arrighi studied Rhodesia (Zimbabwe), though he argued thatdevelopments in South Africa were similar.

During the early stages of capitalist penetration it proveddifficult to recruit a sufficient labour force locally, not because ofany unwillingness by Africans to respond to market incentives, butbecause producing goods for sale gave a better cash return on effortthan wage-labour, at the rates the mines were prepared to offer. Atthis stage, the African peasantry could meet their subsistence needswithout participating in the cash economy; sales of produce orlabour-power were a use of surplus labour time to increase livingstandards.

The solution to this ‘problem’ was, in essence, simple; the Africanpeasantry was expelled from the land, the classic centrepiece of aprocess of primitive accumulation. There are, however, somedistinctive aspects of primitive accumulation in Rhodesia that makeit worth looking at in a little more detail. The expulsion of thepeasantry from the land could not take place at once, since there wasa need for food supplies for the mining sector. Most of the land inRhodesia was expropriated at a very early stage (by 1902; EPEA:195), but the African peasantry was left in occupation since landwas plentiful but labour scarce. European owners of land initiallyexploited the Africans through the establishment of ‘semifeudal’relations: the exaction of labour services, or rents in money or kind.Rent and tax charges forced Africans into the cash economy, but didnot force them to sell their labour-power rather than their products.Extra-territorial African workers from what is now Zambia andelsewhere were essential to capitalism in Rhodesia until the slumpof 1921-3.

During this first stage various counteracting tendencies were atwork. African peasants invested in improved means of production,mainly of a ‘land-using’ type (draught animals, ploughs), increasing


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their capacity to produce, but at the same time they developed newconsumption habits, became more dependent on the cash economy,and were progressively excluded from the best lands by Europeancapitalist farmers. Supplies marketed by capitalist farmers drovedown the prices Africans could get for their products, while theircapacity to produce was reduced by land scarcity and subsequentloss of fertility due to over-farming. The slump of 1921-3, whenagricultural prices fell sharply, marked the turning point. From thenon the African population was essentially a proletariat, dependentfor subsistence on the sale of labour-power, and in a quite differentposition from the peasantry of tropical Africa.

The foothold African workers retained in the peasant economyallowed the wage to be held down to the subsistence of a singleworker, with the costs of reproduction of labour-power met by thework of the rest of the family in the tribal reserve areas. After theSecond World War, average African wages rose as oligopolisticindustry introduced more modern techniques and ‘stabilized’sections of the labour force, while the wages of other sections of theproletariat remained at the single-man-subsistence level. Arrighisummed up in a much quoted sentence: ‘Real wages remained at alevel which promoted capitalist accumulation not because of theforces of supply and demand, but because of politicoeconomicmechanisms that ensured the “desired” supply at the “desired”wage rate’ (EPEA: 214).

Arrighi’s analysis is a superb application of the Marxist analysisof primitive accumulation in a particular case. It has often beenmisunderstood as illustrating some specifically colonialmechanism; what strikes me is how similar it is to the origins ofcapitalism in, say, England. The ‘semi-feudal’ stage, and theexpulsion of peasants by individual land-owners convertingthemselves into capitalist farmers are strikingly familiar. The reallyinteresting question is why other places where superficially similar‘semi-feudal’ structures existed (e.g. the Latin American latifundiasystem) have so far evolved in a very different way. Arrighi’sexplanation seems to be that Rhodesia’s economy expanded rapidlybecause of the implantation of competitive capitalism with anumerous national (settler) bourgeoisie.


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10.4 REY

Rey’s general theoretical framework has already been discussed.His analysis of the impact of capitalism outside its homelands restsessentially on a single case study of ‘lineage’ societies in Congo-Brazzaville (Rey 1971). It can have few equals in its combination ofrigorous and creative Marxist theory with detailed study of a pre-capitalist society and its penetration by capitalism. Rey claimed,first, that he could define a lineage mode of production (in a strictlyMarxist sense), which was dominant before the installation ofcapitalism in the area studied and, second, that the history of thearea could be understood by looking very carefully at theinteraction of capitalist and lineage modes of production.Specifically, the lineage mode of production was very well suited togenerating a supply of slaves for export during the period of theslave trade, rather poor at producing goods for export, and quiteincapable by itself of generating either a proletariat or a marketablesupply of food to support a proletariat. These facts conditioned thehistory of its interaction with capitalism.

According to Rey, the lineage mode of production defines twoclasses: chiefs (or elders) and their dependents (or juniors). Eachchief has a group of dependents; individuals are allocated topositions in the system by (real or notional) kinship relations.Subsistence production is carried out in groups of various sizes, thechief’s subsistence being produced mainly inside his ownhousehold. Groups are connected by a network of exchanges,carried out by the chiefs; the class status of chiefs, and the lineagemode of production are defined by the chiefs’ role in theseexchanges. ‘Prestige goods’, obtained in previous exchanges orproduced by the surplus labour of dependents, are exchanged foreach other, for slaves (until 1920), or for women (as brides for groupmembers, for whom a dot or ‘bride price’ is paid).

Other writers have described this (or similar systems) asprimitive-communal, that is, classless. Rey presented a very carefuldefinition of class:

We shall speak of class conflict in any society in which aparticular group controls a surplus product, the partial or total


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use of which is for the reproduction of the relations ofdependence between the direct producers and this group. (Rey1975: 60)

Capitalism too is defined by an exchange relation (the sale oflabour-power) and in the capitalist mode, as in lineage societies, thesurplus product may not be devoted to the personal consumption ofthe ruling class. It has been argued that chiefs (elders) are not adistinct class, because juniors succeed in their turn, but Rey retortedthat the majority of the population (slaves and their descendants,women, most free males) are excluded.

Slavery and the exchange of slaves are clearly of vital importanceto the history of this area. It should be understood that slaverywithin lineage societies was quite different from slavery in theplantations of the Americas. When an offence was committed(theft, witchcraft) the offender could be handed over to the chief ofthe offended group, so enslavement always took an individualoutside his group of origin. The receiving chief could pass the slaveon in a further exchange or settle him in his own group. Oncesettled, he was no longer saleable and acquired a status littledifferent in practice from other members of the group. Slaveproduction did not exist, nor did a permanent status of chattelslavery. Rey argued that this ‘circulation of men’ together with the‘circulation of women’ (as wives) functioned to redistributepopulation from over-populated to under-populated groups, in asociety in which population was the main resource.

It is easy to see how this system fitted in with the slave trade. It isoften argued that commodity exchange with merchant capital has adissolving effect on pre-capitalist societies, and one would think atfirst sight that the export of literally millions of slaves (from Africaas a whole) over a period extending from the sixteenth to the latenineteenth century would have had the most appallingly destructiveeffects. Rey argues, on the contrary, that lineage societies remainedin good shape during this period, since the trade in slaves was nomore than an extension of the normal functioning of these societies.

European traders acquired slaves through the coastal kingdoms,hierarchical lineage societies each of which monopolized one of thefew usable harbours. Traders bought slaves through the chiefs ofimportant lineages, so trade with Europeans was assimilated to the


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system of exchanges between chiefs. Coastal lineage societiesreceived considerable revenues (in commissions and the like) fromthe slave trade which could be used to acquire slaves, over andabove the number exported, who could then be settled andincorporated into the society. Throughout the whole period of theslave trade the kingdom of Loango enriched itself both in goods andin men’ (Colonialisme: 279). Much of the same goes for lineagesocieties further in the interior, which served as a transmission beltmoving slaves towards the coast, and European products inwards.The category of ‘prestige goods’ came, during this period, to consistalmost exclusively of European products. The wealth and power ofthe dominant chiefs increased and the network of exchangerelations between them was extended rather than beingundermined. The depopulation of lineage societies [was] sloweddown by the mechanisms of control over the circulation of men, andabove all compensated by the mechanisms of reinsertion of a part ofthe slaves who came into them’ (Colonialisme: 279). The main areasof depopulation were far inland, in areas without a lineage structureor where the lineage mode of production was weak, and failed toprovide for a net acquisition of slaves. This illustrates Rey’s generalthesis that exchange relations with capitalism do not necessarilybreak down pre-capitalist societies or pave the way for theestablishment of capitalist relations of production.

As the slave trade declined (for reasons external to Africa),European merchants tried to develop trade in products as asubstitute. The products involved were primarily ivory and rubber,products of hunting and gathering obtained in traditional andextremely wasteful ways, which threatened to destroy the naturalsources of these products. In 1898-1900, the French state, havingtaken formal authority over the area, tried to establish ‘rational’production for export by dividing the territory between‘concessionary companies’ (sociétés concessionaires). This episodeis important in Rey’s argument, since the failure of this initiative ishis main piece of evidence for the incapacity of capitalism toestablish itself by primarily economic means. The concessionarycompanies found they had to deal with local chiefs, since Frenchcolonial power had not, in practice, been imposed. Attempts tointroduce capitalist production proved unprofitable since wages


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(paid to the chiefs) were high, and supplies of labour-power andprovisions for the workers were unreliable. The companies endedup continuing the traditional pattern of trade by barter, on a limitedscale, from trading posts in the interior instead of at the coasts.Trade was restricted in volume, since lineage society only met itsneeds for prestige goods through exchange. Subsistence continuedto rest on traditional production outside the sphere of the market.Because of the wasteful methods of production, supplies dried upand the companies effectively ceased to exist.

The period from the completion of military conquest in 1920, to1934 was characterized, according to Rey, by the dominance of acolonial mode of production, defined by the forced recruitment oflabour and the forced sale of products. This was the first stage in thearticulation of the capitalist and lineage modes of production,corresponding to the stage of primitive accumulation in thehomelands of capitalism; the previous contacts between capitalistand lineage societies were wholly external, and did not constitute anarticulation. The centrepiece was the construction of the Congo–Ocean railway by forcibly recruited labour, an enterprise that costfifteen or twenty thousand lives.

In the beginning, after the failure of the concessionarycompanies, a ‘subsistence’ society only exchanging withcommercial capital to meet its needs for prestige goods.Afterwards, in the period from 1934 (or even 1932) to today,‘free’ sale of labour power . . . and continually growing sale ofproducts. This is because, during the period of construction ofthe railway, workers who had lived in the self sufficientsubsistence economy became simultaneously wage earners, andbuyers; while the men who remained in the villages and aboveall the women became sellers of provisions. The unity of theproducers and consumers was broken. . . . During a first stageworkers on the one hand, products on the other were obtainedby force, because the society did not know what to do with themoney that was forced on it in ‘payment’. . . . But soon enoughthe situation was reversed and money became the intermediary,not only for goods, but also for . . . the bride price.(Colonialisme: 365-6)


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The colonial mode of production was not set up deliberately totransform lineage society, though the administration certainly hadin mind a ‘civilizing mission’ (for civilization read capitalism). Theyhad little choice in the circumstances they found themselves in.

In 1921, the administration were forced by facts to use the onlyform of intervention which was adequate to the scale of theirprojects: the reorganisation of the mode of production itself. . . .We consider that a very large number of economic and eventechnical choices which were made had the essential function oftransforming the social mode of production (whether or not thatwas the conscious aim of those in charge – G. Sautter does notjudge them to have been intelligent enough to have consciouslyattempted such an intervention). (Colonialisme: 367)

The lineage mode of production adapted to the needs ofcapitalism through the monetarization of the dot (bride price). Reystressed that the social relations of the lineage mode of productionare expressed in money form, just as money rent is, according toRey, a monetary expression of a feudal relation of production.Money circulating among chiefs of lineages as bride-price paymentsis generally not diverted to other purposes. At the same time, thechiefs require young men to make money payments to them as acontribution to the bride price. The sums of money available forpayment in the form of bride price have thus continually increased,and the level of the bride price has inflated correspondingly. Youngmen are forced to work for wages or sell products in order to paytheir share, so the lineage relation of production, the control ofchiefs over the circulation of women, serves the needs of capitalismby forcing products and, above all, labour-power on to the market.Simultaneously, the inflation of the bride price keeps it out of reachof a wage earner unless it is augmented by the accumulated hoardof the chief, so the chiefs keep their hold; the lineage relation ismaintained.

During the colonial period, the political structure of lineagesociety was first disregarded and disrupted, then reconstituted, inmuch the same way as the economic-social structure. Thetraditional system of chiefs was absorbed into the administration,


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and previous patterns of dominance between tribes, clans andlineages reappeared. The nascent indigenous bourgeoisie and thepolitical leadership of the independent state of Congo-Brazzavilleare derived from the same group who controlled and profited by theslave trade, a comprador group with centuries of experience inacting as intermediaries between capitalism and native society.

The stage is set for the neo-colonial period. In this stage,capitalism can see to its own reproduction by purely economicmeans, but needs a pre-capitalist mode alongside it to provide asource of additional labour-power and also to provide food for thecapitalist labour force. There is less to be said about this period thanabout its predecessors, since the capitalist mode of production nowdominates, and the workings of capitalism are relatively wellunderstood. In Congo-Brazzaville this stage got fully under way inthe 1950s, after an interlude of twenty years in which firstdepression and then world war held up development. The dominantmotive force in this period is investment by metropolitan financecapital in the export sector. Only metropolitan capital has themeans to invest on a large scale: the colonial period had created asuitable environment for capitalism, but had not formed anysubstantial capitalist class. The transformation of the lineage modehad ensured the availability of plentiful, cheap labour, and thenatural resources of the region were now open to capitalistexploitation. The external market dominated, since the internalmarket, created by the separation of producers from the means ofproduction, was primarily a market for food, met by small-scaleproduction.

Rey’s most important claim about the neo-colonial period is thatdevelopment is still held up by the persistence of the pre-capitalist(lineage) mode of production. This is no longer a matter of labourscarcity, but of the dominance of ‘tribalist’ politics in the newlyindependent state of Congo-Brazzaville (though this is assertedrather than demonstrated):

The reinforcement of the lineage system is undoubtedly anobstacle to ‘development’. Many well-intentioned Europeanobservers believe that the capitalist states of the West could,from a technical point of view, have an interest in supporting thedevelopment of an efficient modern bureaucracy as against the


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tribalist bureaucracy. They forget one thing, that capitalism isnot interested in the technical aspect of development(production of use values), but in the social aspect (developmentof capitalist relations of production and above all the extractionof surplus value). (Colonialisme: 462)

For this reason, capitalist states support tribalism and maintainthe lineage mode of production and, in other parts of the world,maintain other pre-capitalist forms. Throughout the world,capitalism today plays a fundamentally counter-revolutionary role:it keeps the most archaic forms in existence; it restores them whenthey are threatened (see for example the sultanates of Chad)’(Colonialisme: 463). Precapitalist forms of exploitation aremaintained by capitalism and stand or fall with it. Capitalistexpansion will not remove the burden of these archaic forms exceptat a snail’s pace. Only a socialist revolution can remove the doubleburdens suffered by the workers of underdeveloped countries;victory over capitalism will sweep away pre-capitalist forms as well.

Rey’s analysis is open to criticism. First, it can be argued thatlineage societies are in fact classless, primitive-communal systems.This criticism would harm Rey’s claim that analysis must befounded on the defining relations of production of the dominantmode, but would otherwise leave his account untouched. Second,the notion of a ‘colonial’ mode of production is profoundlyunsatisfactory. The idea seems to be a product of Rey’s Althusserianstructuralism (which he later rejected); there must be a dominantmode, and it could not at that stage be capitalism since theconditions of capitalist reproduction were not yet assured. This isonly a problem on the local level; capitalism had a secure base forits reproduction in its homelands. Rey insisted, in other contexts,that a mode of production must be defined by a relation betweenclasses which reproduces the domination of one class over the other.What is this relation in the colonial mode of production? Whatclasses does it connect? The colonial organization clearly did notreproduce itself: rather it produced the conditions of capitalistdomination. There is no need to describe colonialism as a mode ofproduction at all. We can simply describe forced recruitment oflabour and forced sale of products as a form of state interventiongenerated by the articulation of the capitalist and lineage modes of


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production at a certain stage of development, and serving theinterests of capital.

A more serious question is whether the area in Congo-Brazzavillestudied by Rey is typical even of other parts of Africa, let alone ofother continents (cf. Crummey and Stewart 1981; van Binsbergenand Geschiere 1985). Rey’s assertion that lineage societies couldabsorb the impact of the slave trade and survive with their essentialstructures intact does not seem to apply to other parts of Africa. Thedestructive effects of the slave trade in many areas are fairly welldocumented (e.g. Amin 1976: 319-22, and references cited there;for a more general discussion of slavery in the history of capitalism,see Miles 1987). Arrighi found that in other parts of Africa theindigenous inhabitants were willing from the start to sellagricultural products and labour-power, though only if the pricewas right. Force was used in southern Africa to displace Africansfrom the land and force down the price of labour-power, as it was inEurope; it was not used to force the population into the market, butto impose the desired terms on them. It remains true, however, thatforce was used, and that it came from outside and not from anindigenous ruling class, so Rey’s analysis is not wholly undermined.

10.5 LEYS

The first wave of writing on modes of production and classes in theThird World understandably concentrated on the persistence ofpre-capitalist relations of production in agriculture. In so far aschanges in class structure came into the picture, the stress was on theformation of a proletariat from the agricultural population. Manywriters accepted the dependency theorists’ pessimism about theprospects for capitalist development, and explained what theyassumed to be slow development in terms of the persistence ofprecapitalist economic systems. Amin (discussed in chapter 8) is aparadigm example of the way analysis of modes of production canbe slotted into a dependency framework.

Leys’s study of the formation of a national bourgeoisie in Kenya(1978) marked a new stage in the debate, particularly as he hadpreviously established himself as a leading exponent of dependency


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theory in the African context (Leys 1975), a perspective he nowexplicitly rejected. Kenya, he argued, had experienced fairly rapidgrowth over a substantial period, accompanied by a steadyextension of capitalist relations of production, increasingproductivity in industry, and a (small) net inflow of capital.Dependency theorists had claimed that examples of growth in theThird World were ‘exceptional’; the Kenyan case could not beexplained away so easily. At the same time, Leys did not go all theway with Warren’s claim that a general process of capitalistdevelopment was under way (on Warren, see chapter 11 below);instead he argued for the study of specific cases to establish whydevelopment proceeds more rapidly in some places than in others.

Before colonization, a class of ‘accumulators’, in what is now thecentral region of Kenya, had gained control of land and livestockthrough migration to new territories, raiding, and trade. Installedas ‘chiefs’ by the colonial state, they found access to land curtailedby settlers, but were able to defend and even advance their statusthrough education, wage-labour, and commerce. They alsoestablished a dominant position in the nationalist movement, andemerged as the leaders of an effective power bloc when the countryachieved independence. This group, who became a nascent‘national bourgeoisie’, were able to transmit capital accumulatedbefore conquest through the colonial period, and emerge as thedominant class at the end of it. (Leys credited M. Cowen for layingthe basis of this analysis, mainly in unpublished papers.)

The state played a crucial role in the next stage: ‘the stateapparatus superintended a series of measures which rapidlyenlarged the sphere and rate of indigenous capital accumulation’(Leys 1978: 250). Settler capitalism had created the preconditionsfor capitalist development (a proletariat, infrastructure). Thenational bourgeoisie, sponsored by the state, displaced settlers insector after sector, starting with agriculture, then urban real estate,commerce, and finally manufacturing. Leys insisted that the statedid not play an independent role in this process, but ‘reflected theexisting class power of the indigenous bourgeoisie, based on theaccumulation of capital they had already achieved’ (1978: 251). Herejected as ‘mystification’ the idea of a ‘modernising élite’ andequally of the state as mediator between foreign and domestic


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capital. While one can see his point, he may have overstated it;surely the state has some degree of autonomy, and a political élitehas to balance conflicting pressures and construct a workablepower bloc. It seems too crude to treat the state as no more than thepassive instrument of a dominant class.

In the 1970s, primitive accumulation continued through‘modern forms of plunder’, winked at by the state, but there wasalso a movement of indigenous capital from commerce, with itsquick returns, to manufacturing, where returns are slower but moresecure, because there is less competition. The national bourgeoisiestabilized its position and started to develop all the appurtenancesof an established bourgeois class: the emergence of differentfractions of capital, of associated adjutant groups (lawyers,accountants, and so on), of a distinct bourgeois culture and life style(private schools, magazines, and the like), and of classorganizations (the Federation of Kenyan Employers) and classconsciousness.

Leys did not claim that the Kenyan case was typical; it dependedon certain special features of Kenyan experience, notably theexistence of a pre-capitalist class of accumulators sufficientlydeveloped to survive the colonial era, and the existence of a settlerclass which established the preconditions for capital accumulationready for the national bourgeoisie to take over. Other cases wouldhave their own special features (Lubeck 1987 contains studies byvarious writers of different parts of Africa). Leys did claim

that capitalist production relations may be considerablyextended in a periphery social formation, and the productiveforces may be considerably expanded within and through them,for reasons having primarily to do with the configuration ofclass forces preceding and during the colonial period: and thatthe limits of such development cannot be determined from thesort of general considerations advanced by underdevelopmentand dependency theory. (Leys 1978: 261)


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10.6 GALLAGHER AND ROBINSON

The history of empire and of imperialism has, of course, beenstudied extensively, but most non-Marxist historians have beenvery unwilling to theorize or generalize about imperialism as awhole. Refusal to see the wood for the trees is almost anoccupational qualification for historians. One very notableexception is the work of John Gallagher and Ronald Robinson; Ishall argue that they anticipated some of the themes discussed inother sections of this chapter, albeit using a very different style andterminology, and that Marxists can learn from their work. Theseminal article on the ‘imperialism of free trade’ (Gallagher andRobinson 1953) was followed by a full-scale study of Africa and theVictorians (Robinson and Gallagher 1961). Some more recentarticles (Robinson 1972, 1986) summarize what Robinson nowcalls the excentric view of imperialism; for a full bibliography of hiswork to 1988, see Porter and Holland (1988).

The 1953 article started by rejecting the idea that the ‘free trade’era of the mid-nineteenth century was a period of indifference toempire. As Gallagher and Robinson pointed out, Britain did notabandon any territory in this period, indeed the formal empireexpanded significantly, while the area of informal control wasextended even further. A second theme, stressed more strongly byRobinson in his later writings, is a rejection of the Eurocentrism ofexisting theories, that is, of the idea that the major developments inthe history of empire must be explained by correspondingdevelopments in the imperial centres, and that the colonies weresimply passive victims of events at the centre. The excentric theory(‘excentric’, centred outside Europe, is a manufactured opposite ofEurocentric) emphasized the role of local collaborators withimperialism (compradors, in Marxist and radical terminology), anidea reminiscent of Frank’s (later) notion of a chain of metropolissatellite relations.

Imperialists aimed to get ‘empire on the cheap’, the maximumreturn for the minimum cost and risk. They therefore preferred tomanipulate rather than to control directly, and they relied on localcollaborators wherever possible, and used local resources. Theimposition of formal empire represented a failure of this policy, andwas adopted reluctantly when informal control broke down.Different non- European societies had different structures, and


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hence offered different opportunities for manipulation anddifferent sorts of potential collaborators. Differences in the historyof imperialism in different areas can be explained by differences inthe structures of indigenous societies, and the evolution ofimperialism by the evolution of politics and society in the periphery,not by changes in the centre.

Robinson (1972, 1986) drew a distinction between areas ofEuropean settlement, on the one hand, and Africa and Asia, on theother. White colonists were ideal collaborators: tied culturally toEurope, ready and willing to seek out mutually profitable patternsof trade and investment. Hence the informal British empire in LatinAmerica and the steady shift of power to local administrations inCanada, Australia, and so on. By contrast, in Africa and Asia, the‘institutional barriers to Europeanisation proved intractable’(1972: 276), a local bourgeoisie was lacking, and the imperialpowers had to turn to ruling oligarchies and local élites. As theseareas were drawn into the net, local political systems weredestabilized, and sooner or later the imperialists were forced tochoose between retreat or taking over and ‘reconstructingcollaboration from the inside’ (1986: 278). The exact pattern stilldepended on the available local resources. At one end of the scale,where the imbalance of power was at its greatest, proconsuls‘demolished indigenous structures’ and ‘imposed the mostinordinate terms’ (1986: 278); interestingly, Robinson namedCongo-Brazzaville as an example (cf. Rey on the colonial stage,section 10.4 above). More often, local structures could bereconstructed but retained and made to bear most of the costs, andprovide most of the personnel, of empire; divided India conquereditself, and paid the costs into the bargain.

The end of (formal) empire is explained in similar terms.Imperialism depended on a series of ‘contracts’: between Europeanpowers (the conventions dividing Africa, for example); betweenimperialists and collaborators; between collaborators and the massof the subject population. After 1940, these broke down fairlyrapidly, with the rise of nationalist movements and the decline in thepower of the European colonial powers relative to the USA andUSSR. Empire became too expensive to maintain (cf. Szymanski1981: 119-20).

What are we to make of this account? I see little or nothing in itthat is incompatible with Marxism (if that matters), at least as far as


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the main outline is concerned. Robinson was surely right to remarkthat the ‘endless debate as to whether imperialism is economicallyor politically motivated seems ultimately futile’ (1986: 281). It istrue that accepting the Gallagher and Robinson story would involveabandoning the idea that imperialism entered a new and quitedifferent stage at the turn of the century, but that idea looks fairlythreadbare anyway. On the other hand, I suspect that Gallagher andRobinson took the ‘excentric’ element of their theory a bit too far.They simply took the expansive impulse of (capitalist) Europe forgranted, seeking to explain everything by the obstacles it found inits way in the periphery. Robinson (1972), for example, assertedalmost casually that Europe was the source of a drive to integratenon-European economies into the system as markets andinvestments and to secure them against rivals, and assumed withoutdiscussion that Europe had a great advantage in economic andmilitary power over other areas throughout the process, allowing itto assert control, at a cost, wherever and whenever needed. Theextent and character of the European lead surely varied over time,which may help to explain the relative costs of different options,while the opportunities of gain from (formal or informal) controlalso varied over time as a result of economic and political changesin the capitalist centres. If the history of imperialism is to beexplained by the balance of costs and benefits (to the imperialists)offered by different courses of action, it must be recognized thatcosts and benefits were affected by developments in the centre aswell as in the periphery.

10.7 SUMMARY

The classical Marxists defined modes of production in terms of therelation between the direct producers and their immediateexploiters, and treated them as successive stages of socialdevelopment. This approach can still be defended, but it does notseem to work well when applied to modern underdevelopedcountries. One alternative is to redefine modes of production asstages of development on a world level and to deny the relevance ofproduction relations, but this leaves little to put in their place.Another possibility is to modify the conception of modes of


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production as successive stages by arguing that a variety of relationsof production can coexist within a single society, either permanentlyor during a very prolonged transition, an ‘articulation’ of modes ofproduction. In itself, this only provides a framework for analysis,but a number of writers have used it to construct illuminatingaccounts of development in particular places.

Two main questions emerge from the debate. First, howimportant are relations of production in explaining development orunderdevelopment? For some authors they are central, while othersexplain the persistence of underdevelopment in terms of factorswhich can occur in a variety of social systems, such as the extractionof surplus, or by unequal exchange in a wholly capitalist world. Myown view is that a single explanation is unlikely to apply to all casesat all stages of development, so a complete theory may draw on bothviews. State policy matters: an important and growing body ofliterature links analysis of modes of production to class alliancesand state policy. Political independence is important, because itgreatly increases the scope for action by local political forces,though it does not by itself guarantee national political autonomy.Second (and this is a very closely related issue), how can changes inthe relations of production be analysed? Some writers regardproduction relations as very durable, only subject to alteration as aresult of catastrophic events (such as conquest) or of protractedclass struggles. Others regard ‘forms of exploitation’ or ‘modes inwhich labour is recruited and compensated’ as fairly easily alteredin response to economic conditions. Again, it is not clear to me thatone can safely generalize.

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11

After Imperialism?

The classical Marxists thought of capitalism as an engine of change,advancing in a generally predictable direction through a series ofcrises and disturbances. There was no presumption that whoeverwas on top at any particular stage would stay on top, becausecapitalism generates uneven development. Marx, for example,expected full capitalist development in India, once independencewas achieved, and Lenin expected that the centres of accumulationwould shift from more advanced to less advanced areas in search ofcheap labour, accessible natural resources and higher profits. Theend of formal empire might be a crucial turning point, seen in thisframework. By contrast, many post-war Marxist theorists assumedthat capitalism always accentuates existing differences in levels ofdevelopment. In Frank’s picture, a chain of metropolis-satelliterelations ensures development for the metropolis andunderdevelopment for the satellites, reinforcing the chain. Thisleads to a prediction that the United States, as the most powerfulimperialist centre, will continue to dominate the system, and thatunderdeveloped countries are bound to remain subordinate unlessthey break away from the capitalist world system altogetherthrough socialist revolutions. The end of formal empire is of nosignificance, in this view (which was, after all, first advanced toaccount for the poor performance of independent Latin Americancountries).

The classical Marxist view, never completely lost, returned toprominence in the 1970s and 1980s. The modes of productiondebate (chapter 10 above), with its emphasis on internal causes ofunderdevelopment, is part of the revival of a classical perspective.This chapter deals with recent trends in the development of

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capitalism, and with the way they have been analysed in the newclimate of opinion among Marxists. The first section is a briefdiscussion of the multinational corporation, the latest form ofcapitalist enterprise. The second section surveys debates about thefuture of central capital: is US domination assured, or is a return torivalry between relatively equal capitalist centres likely? The finalsection is concerned with the future of capitalism in the periphery:is the Third World doomed to remain underdeveloped, or is thecomplete capitalist industrialization of the world a real possibility?

11.1 MULTINATIONAL CORPORATIONS

Multinational corporations are capitalist firms which operate inmore than one country. There is no clear line between multinationaland national firms, since all multinationals started as national firmsand expanded their operations abroad by degrees. Multinationalsare generally thought of as large; this need not necessarily be so, butmost of the world’s largest firms are multinational and largermultinationals are the principal subject of concern. Some writersrestrict their attention to firms with production activities in morethan one country, excluding commercial and financial companies,which are also rapidly becoming multinational. Multinationalsmay alternatively be referred to as transnational or internationalfirms; the terms are (usually) synonymous.

By far the most important fact about multinationals is that theyare capitalist firms. Both national and multinational firms sellproducts and buy means of production in markets that are usuallyfairly well integrated on a world scale, and both buy labour-powerat wages substantially determined by local labour markets. Both aresubject to the same competitive imperative to minimize costs and toaccumulate. Not surprisingly these circumstances, determined bythe working of the capitalist system on a world scale, place closelimits on their behaviour. Consider, for example, a system withoutmultinationals, in which firms in several different countriescompete in selling, say, raw materials. The lowest cost supplier willgenerally succeed, while the others fail. All try to reduce costs to theminimum. Now compare that with a multinational firm operating


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in all the different countries concerned. It, too, will concentrateproduction in the lowest cost location, and try to minimize costs.The outcome is likely to be exactly the same. It is pointless to attackforeign firms for ‘disregarding the needs of the national economy’when there is no reason to suppose that domestic capital wouldbehave any differently. Criticism must be directed at the system.This example also suggests that state control of industry is likely tobe relatively ineffective as long as the imperatives of competition ina world market remain. The second important fact about (large)multinationals is that they are large, and may have a degree ofmonopoly power. Large firms have the organizational resources tocontrol operations scattered over several countries and to deal withthe legal and financial complications involved. Much of theliterature, especially on multinationals in underdevelopedcountries, conflates the effects of capitalism, of monopolycapitalism, and of foreign capital under a single heading: the impactof multinational companies. This does not make for analyticalclarity.

It would be a mistake to overstate the novelty of multinationals.Merchant capital has operated internationally since its beginnings.The organization and financing of mines and plantations abroadalso goes back to the beginnings of capitalism. By the late nineteenthcentury, international flows of capital were occurring on a largescale, and a noticeable part of this flow of capital took the form ofdirect investment, that is the investment of capital in productiveactivity abroad by a firm already engaged in production in its homecountry. Multinational firms even today often have the bulk of theiractivities located in the state where they have legal domicile andtheir head office. Nevertheless, it is possible to speak today, if onlyas a tendency, of companies which have a ‘global perspective’, andlook over the whole world for potential locations for production.

The emergence and significance of multinationals cannot beadequately analysed at the level of the firm; it must be seen as partof a much wider process of internationalization of production andof capital (see Palloix 1973). Multinational firms can be seen asorganizations that channel the international movement of goods, ofcapital, of technical knowledge and organizational capacity, and of

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skilled personnel. They are not by any means the only channel forany of these flows. Relations between capitalist firms (within asingle country or in different countries) can range across a wholespectrum from impersonal market exchange to incorporationunder a single ownership; there are, for example, licensingarrangements for the use of technology and brand names, jointventures, management contracts, and ‘turnkey’ contracts for thesupply of complete industrial plants together with the necessarytraining.

The emergence of multinationals is a result of the concentrationand centralization of capital on a world scale, in the context of thecontinuing internationalization of capitalism. It would be verysurprising if the formation of giant firms were confined withinnational boundaries. Bukharin analysed these processes (chapter 6above), but expected the formation of national blocs of capital topredominate; it has not turned out quite that way. Themultiplication of links between capitalist firms across nationalboundaries represents the internationalization of the ‘relations ofmutual dependence and domination’ described by Hilferding at thelevel of a single national economy (chapter 5 above).

Michalet (1976) argued that the development of multinationalsis the defining feature of the imperialist stage of capitalism.Orthodox economic theory deals with relations between distinctnation states, assuming free mobility of capital and labour withinbut not between nations. This approach he called ‘internationaleconomies’. Many Marxists (Marx, Luxemburg, Amin) haveadopted this approach. The alternative approach, ‘worldeconomies’, conceives of production and capitalist relations ofproduction as international, or rather world-wide. Lenin was notguilty of adopting the first of these approaches (even Bukharin doesnot completely escape the charge) but was incomplete andambiguous in his analysis. Michalet thus felt free to ‘reread’(rewrite?) Lenin, making capital export the fundamentalcharacteristic of Lenin’s imperialist stage, but insisting that theessential element is not the export of money capital but the exportof capitalist relations of production. Capitalist relations ofproduction on a world scale are created by direct investment by


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firms or financial groups which create subsidiaries abroad (asopposed to ‘portfolio’ investment through loans, or the purchase ofshares as purely financial assets). The emergence of large monopolyfirms and of finance capital is a necessary precondition for thecreation of overseas subsidiaries. Michalet thus identifiedimperialism (in Lenin’s sense) directly with capital export and theemergence of multinational firms. He dated the start of this trend toaround 1900, though it was held back by depression and war, so itappears even now as a novel phenomenon.

He described three main forms of capital export. First, capitalexport in Lenin’s time was aimed mainly at obtaining raw materials.This is of declining relative importance now. Second, it may beaimed at penetrating markets that cannot be effectively penetratedby exports, generating a structure in which production facilities arereplicated in several different countries. This is the dominant formtoday, as a result of oligopolistic rivalry (and, possibly, general‘realization’ problems; Michalet’s argument is unclear). Third, andof increasing importance, capital export may be aimed at exploitingcheap labour to produce goods for re-export to the ‘home’ countryor to third markets. Michalet particularly stressed this form, whichleads to the creation of integrated production organizations cuttingacross national boundaries. There is a real movement to transferproduction to the low-wage periphery, not merely by way of ‘importsubstitution’ (the second motive above) but to produce for themarkets of the centre and the whole world. I have alreadymentioned this possibility and argued that it has been neglected bymost Marxist writers. Michalet, however, argued that it will noteliminate the centre–periphery gap, since capital-intensive methodsof production keep employment in the periphery low and hencekeep wages down. He did not, however (except in passing; 1976:154), note the possibility that wage and employment levels in thecentre might be dragged down towards those in the periphery.

Like many other writers, Michalet argued that the growth ofmultinational companies and of relations of production on a worldscale represents a lessening of the importance of the nation state.Here I think he went wrong. The internationalization of capitalmakes a conception of the world system in terms of distinct national

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economics increasingly irrelevant, but it does not follow that thenation state is unimportant as a site of class conflict, of politicalintegration, and of a state apparatus that has at its command morepotent weapons than those of monetary and fiscal policy. I shallargue below that the nation state in this sense is a very importantand durable institution.

I shall not give a complete survey of the literature onmultinationals; it is rather scrappy and much of it is irrelevant to thetopic of imperialism. It is better to look at the effect ofmultinationals, along with other aspects of capitalism, in thecontext of more specific problems. Radice (1975) provides a usefulcollection of articles, which also has a bibliography. Perhaps themost influential writer on the subject has been Hymer, who startedout writing from a critical position within the mainstream ofeconomics, then adopted a Marxist standpoint not long before histragic death (see Hymer 1972, 1976; Hymer and Rowthorn 1970).The most important result of the emergence of multinationals is thatthe expansion of the national capital of a particular country (i.e. ofthe firms based there) is no longer tied directly to the expansion ofthe national economy. The implications of this are explored in thenext two sections.

11.2 CENTRAL CAPITAL: UNITY OR RIVALRY?

Multinational corporations, by definition, operate in several nationstates. Other capitalist firms are involved in the world economythough production for export, through the use of importedmaterials or components, through the use of technology licensedfrom abroad, through the sale of licenses to others, and so on.Commercial and financial capital is also internationalized. None ofthis means that any specific capital lacks a nationality, a definitebase in a particular capitalist nation state. The idea thatmultinational firms are somehow above the petty conflicts of nationstates is a fiction. Virtually all multinationals have a very clearnational base; each company has historical roots in a particularcountry, and in most cases its top management is recruited in its


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home country, and the largest part of its capital and production isstill located there. The few exceptions include firms based in smallcountries (e.g. Nestlé of Switzerland) and two Anglo-Dutch giants(Shell and Unilever), which have dual nationality.

Capitalism and the nation state grew up together. The analyticalprimacy, in Marxist theory, of the economic over the political doesnot imply a historical order, nor does it imply that the division of theworld into distinct nation states and the determination of theirboundaries can be explained at the economic level. At thebeginnings of capitalism, and for a long time after, the productiveactivities of industrial capital were locally based, while the marketsit served were as often local or international as national. It would bea mistake to think of an integrated national economy or national‘social formation’ coming into existence and then conjuring up astate to match. Rather, the existence of a state (and the extension ofits boundaries to the point where the resistance of other nationstates limited further expansion) created and delimited nationalinterests, national markets, and so on. Each capital looked to its‘own’ state for support against other capitals forming in othernation states and, through the common need for state support,formed an alliance with other regional capitals within the samenation. The need for compromise between different sectionalinterests within the capitalist class, and the need to contain conflictwith other classes, created a dense network of political andideological links, which is what constitutes a ‘nation’.

As capital extends outside national boundaries, it must, ofcourse, create links with other states as well, at least to the extentthat it needs conditions that can only be provided by state action (alegal framework, a monetary system, infrastructure). Murray(1971) discussed these questions, and drew the general conclusionthat internationalization weakens the nation state vis-à-vis privatecapital, a conclusion contested by Warren (1971) and (briefly butcogently) by Rowthorn (1971), who argued that the key question isnot about the power of the state vis-à-vis particular capitals, butabout how a state can support its own capital when it operatesabroad. The essential point is that capital needs the support of ahome state to protect its interests. The whole range of needs that are

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met internally by the state (protection of property, enforcement ofcontracts, and so on) are met internationally by negotiations andagreements between states. A large part of the diplomatic apparatusthrough which nation states deal with each other (in time of peace)has grown up precisely to negotiate the regulation of commercialactivities. A stateless corporation, while not in principle impossible,would be at a disadvantage, since it would have no representationin this system.

Rowthorn (1971) took the analysis further, looking at theparticular example of Britain. British capital is relatively strong,while the British national economy is relatively weak. Individualfirms respond by shifting more of their activities abroad, wheregrowth prospects are better, thus further weakening the Britisheconomy. In the end this weakens the British state’s capacity todefend their interests, while ‘nationalist’ policy measures toimprove the performance of the national economy are blocked bythe threat of retaliation against the vulnerable foreign interests ofBritish capital. ‘Leading sections of the British bourgeoisie havebeen effectively “denationalised”, not through their own weakness,but through the weakness of the British state and their own homebase’ (Rowthorn 1971). Hence the anxiety of British capital thatBritain should joint the EEC, which may provide, ultimately, a moresubstantial home base. The strength of a particular nation state andits capacity to defend the interests of its national capital thusdepends on the strength of the national economy as well as thenational capital.

The history of the capitalist world economy has seen periods ofacute rivalry between capitalist powers, separated by periods ofrelative peace. Marx wrote at a time when it seemed reasonable topredict the obsolescence of the nation state, while Lenin and hiscontemporaries analysed a period when inter-imperialist rivalrywas at its most violent. After the Second World War, the UnitedStates emerged as very much the strongest capitalist power, andwhen Marxist discussion of imperialism revived it was generallyassumed, almost without debate, that inter-imperialist rivalry hadbeen superseded by US dominance. This seemed particularlyobvious to those American writers who took a special interest in


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Latin America, the area most clearly within the American sphere ofinfluence. However, the rapid recovery of the European andJapanese economies, the weakness of the US dollar and theAmerican defeat in Vietnam raised doubts about this view of thepresent stage of imperialism, and provoked a fresh debate in the1970s.

A number of writers anticipated a fusion of national capitalswithin the European Community (EC), to form a unified Europeancapital. Mandel (1967, 1975) predicted such a development, whichwas also discussed, more cautiously, by Rowthorn (1971). It mustbe said that the formation of truly European companies (as opposedto the takeover and absorption of a company from one country byanother from a different country) did not progress at the pace thatthese authors expected; it was not until the 1980s that any numberof European companies started to emerge, and then only ratherslowly. Fusion of capital on a European scale would strengthenEuropean capital vis-à-vis that of America, while continueddivisions in Europe correspondingly favour American capital. Theprediction of Europe-wide fusion of national capitals is of coursebound up with the possible evolution of the EC into somethingcloser to a nation state; again development has proceeded, but onlyvery slowly. The slow development of European unity reinforces theargument above that nationality is a very deeply rooted thing; thedense network of political links that constitutes a nation staterepresents the institutionalization of a multitude of compromisesbetween classes, fractions of classes and other interest groups,which is very difficult to reconstruct on a new basis.

An alternative possibility raised in the 1970s debate was thatnational capitals would merge under US dominance, as Americanmultinationals absorb enterprises from other states or subordinatethem through licensing agreements, subcontracting arrangementsand so on. This seems to be Poulanzas’s position (1975, chapter 1).This case, however, differs little from one in which national capitalsremain distinct, but in which other imperialist nations accept asubordinate role because they know that any challenge to Americandomination would be sure to fail; this prospect was presentedforcefully by Nicolaus (1969). Many writers thought that US

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capital was overwhelmingly dominant in modern imperialism,without spelling out the details (for example, Magdoff and Sweezy1969; Magdoff 1969). At that time, American corporationspredominated in the listings of the world’s largest firms andAmerican domestic production and overseas investments weremuch larger than those of any other country. The size and growthof American investments in Europe seemed particularly significant.The breaking up of European colonial empires enabled Americancapital to penetrate areas of the world formerly denied to it (henceAmerican ‘anti-colonialism’ in the post-war period). Americanmilitary dominance in the non-communist world was, and is,obvious.

The trend of development was less clear. America clearly enjoyeda quite exceptional superiority immediately after the Second WorldWar, and one would expect some relative recovery by other powers.Some writers argued that more rapid growth in Europe and Japanas compared to America was no more than a return to the trend (e.g.Poulanzas 1975), while others claimed that it was a real threat toAmerican dominance, presaging an epoch of relative equalitybetween the main capitalist powers. Mandel (1967, 1975) andRowthorn (1971) both predicted a narrowing of the gap betweenAmerica and other imperialist centres and a consequentintensification of rivalry. Rather oddly, on both sides of the debateattention focused on the relative strength of American andEuropean capital. The relative failure of moves towards Europeanunity hampered the competitive strength of European capital; it wasjustly said that the largest beneficiary of the formation of the EC wasAmerican capital in Europe, which was much quicker to treatEurope as a single market. However, even in the 1970s it shouldhave been clear that Japanese capital was the most formidable rival;it is not divided on national lines, and maintained a rate of growthquite unprecedented in the history of capitalism for some threedecades.

The debate centred on the interpretation of the large flow ofcapital from America to Europe and the consequent rapid growthof American capital in Europe. Ironically, the 1980s have seen amassive reversal of this flow, with American nationalists expressing


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the same fears about foreign ownership that were heard in Europein the 1970s. Poulanzas (1975) saw American investment in Europeas decisive evidence of American hegemony, on the grounds that theexport of capital is the dominant factor in the expansion of capitalin the imperialist period, but offered little evidence for this assertionbeyond a reference to Lenin. Rowthorn, drawing on his work withHymer (Rowthorn and Hymer 1971), countered ingeniously,pointing out that American capital still operated predominantly inAmerica, European capital in Europe. Since European marketswere expanding more rapidly than American, American capital hadto increase its penetration of the European market simply tomaintain its relative position. (Expansion in other markets couldnot offset the loss of ground relative to Europe, since the Japanesemarket proved difficult to penetrate, and other markets were verysmall by comparison.) Combining the effects of market growthrates and changing market shares, ‘big American firms are havingand will have increasing difficulty in keeping ahead of their foreignrivals’ (Rowthorn 1971; 163).

Rowthorn thus agreed that American investment in Europe was,in itself, a gain by American capital relative to its rivals, offset by thefact that European companies still had the larger share of the morerapidly growing European market. Mandel (1967) similarly arguedthat American expansion in Europe was a ‘defeat’ for Europeancapital. They are open to criticism, because the relative rate ofgrowth of different markets cannot be taken as given. Not only wasthe more rapid growth in Europe the result as well as the cause ofthe greater dynamism of European capital, but the inflow ofinvestment from America may well have contributed to Europeangrowth, helping rather than hindering the growth of Europeancapital. In more general terms, the expansion of one capital maycomplement, rather than compete with, the expansion of others.

If we accept that there is a trend towards relative equalitybetween a small number of capitalist centres, as Mandel andRowthorn argue, we must ask what kind of relation between themis likely. Rowthorn took rivalry and antagonism for granted:‘Relations between capitals are always to some extent antagonistic,the degree of antagonism depending both on the area of actual or

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potential competition and on its intensity’ (Rowthorn 1971). Thisis undoubtedly true of individual capitals at a micro-economic level;the overall rate of expansion of the market in which they arecompeting with other firms is beyond their control, and they arestruggling over shares of a given market. However, it is not clear thatsimilar antagonism must exist between capitalist states (Jenkins1987 distinguished between inter-firm and inter-state rivalry).Once the overall rate of expansion of the whole economy is treatedas a variable, the expansion of one capital may be complementaryto that of another. The state is in a position to try to reconcile thetwo aspects of the relation between capitals, complementarity andantagonism. It may thus be possible to resurrect Kautsky’s notion of‘ultra-imperialism’; imperialist powers could agree to co-operateand exploit the world jointly. The choice is not simply betweenpredicting inter-imperialist rivalry on the one hand or ultra-imperialism on the other; it is more relevant to ask how far therecognition of common interests can contain the antagonismsgenerated by other, divergent interests.

That some degree of co-operation, some limits to conflict, aretaken for granted is indicated by the fact that few post-war writershave even considered the possibility of inter-imperialist war (whichLenin and Bukharin regarded as inevitable). Sutcliffe (1972)mentioned the possibility in passing, as did one or two others. Myown opinion is that if states really did act rationally in the interestsof their national capital as a whole, as some rather simple Marxistanalyses have assumed, then it would not be difficult for them tocooperate. Kautsky would be proved right. However, state policiesare the outcome of real political practice, which has to reconcile theinterests of different groups and is deeply affected by a long historyof compromises and of the ideologies that go with them (this is the‘relative autonomy’ of the state). As a result, state policies are notnecessarily rational in any simple sense.

Since the date of the main writings discussed here, the worldcapitalist system has been subjected to a succession of tests, in thetwo oil crises and the subsequent world recessions, and in the debtcrisis. Although co-operation between the major capitalist stateshas clearly not been perfect, most commentators predicted far more


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severe rivalry than in fact occurred. In the 1970s, the measurestaken by oil companies to redirect supplies when some oil importingstates were embargoed by Arab suppliers, and the surprisinglysuccessful expedients taken to preserve the world monetary systemfrom potentially disruptive movements of ‘petro-dollars’, wereexamples of private sector adaptability based on inter-state co-operation, and the rescheduling of debt in the 1980s, if rather moreconflict-ridden, has (so far) proved enough to stave off the worstfears of international financial collapse. Although the dominance ofthe United States is visibly coming to an end, it would be unwise toexpect rivalry between capitalist states to lead to any immediatebreakdown of the world capitalist system.

11.3 CAPITALIST DEVELOPMENT IN THE THIRDWORLD

Perhaps the most important single question about the future of theworld system is whether capitalist development in the Third Worldcan start to close the gap between the developed andunderdeveloped countries, as the classical Marxists expected. In thefirst half of the twentieth century, there were relatively few signs ofcapitalist development in underdeveloped countries, and manyMarxists came to argue a position almost diametrically opposed tothat of the classics. Where it had been argued that capitalistdevelopment had to come first to create the possibility of a socialistrevolution, it was now argued that the absence of capitalistdevelopment made socialist revolution necessary.

When Europe and North America industrialized, the worldeconomy was relatively unintegrated. Transport was expensive andrisky, so goods were only traded where production costs were verydifferent in different areas. Most basic subsistence goods and meansof production were produced locally, by craft techniques. There wastherefore scope for local development of capitalist production at theexpense of older methods, while competition from more advancedcentres was limited. Capital was relatively immobile, andtechnology was embodied in the skills and experience of the labourforce. Thus any capitalist development that did take place createdan independent local bourgeoisie and a local concentration of skills

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and technical knowledge. Independent capitalist development inmany centres was possible and its progress was determined largelyby local conditions (except where it was suppressed by a colonialstate). Frank and Wallerstein would not accept this analysis; theyhave argued that an integrated capitalist world economy existedfrom an early stage. The facts are against them. Up to the industrialrevolution the bulk of intercontinental trade was in luxuries such assugar (slaves are an exceptional case), and the impact of Europeancolonial dominance was primarily through its effects (often directand brutal) on the mode of production in the subordinated areas.

During the later part of the nineteenth century transport costs felldramatically, organizational forms were found that permittedlarge-scale international capital flows, and the systematization oftechnical knowledge made international transfers of technologymuch easier. All this, of course, was the result of capitalistdevelopment, and it led to the progressive creation of a relativelyintegrated world capitalist economy. The situation facing anunderdeveloped country today is therefore quite different from thatof earlier periods. One can ask whether industrialization on thepattern set by, say, Britain is possible today. One can also askwhether industrialization on that pattern is a relevant standard toset in present day conditions.

On the one hand, underdeveloped countries now starting aprocess of industrialization face competition from advanced centreswith centuries of capital accumulation and technical progressbehind them. As a result, a world pattern of specialization has beenestablished in which the underdeveloped areas export mainlyprimary products (or did until recently), and import industrialproducts. Industrialization means displacing imports (or breakinginto export markets) rather than displacing primitive craftindustries. On the other hand, capital and technology can now beimported, and rising wages in the advanced countries offset theadvantages of high productivity there.

There has been a substantial amount of industrial developmentin the Third World in recent years, typically in the form, to beginwith, of import substitution, starting with the production ofrelatively ‘light’ consumer goods using imported capital equipment,often using at least some imported funds and with some sort ofinvolvement of multinational companies (wholly or partly ownedsubsidiaries, joint subsidiaries, licensing arrangements, and so on).


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The central issue in debate is whether this merely reproducedrelations of dependence between centre and periphery in new forms(as Amin, Frank, Sutcliffe and others argue) or whether it marks thebeginning of a breakdown of the centre-periphery division (asWarren claimed).

Sutcliffe (1972) was one of the few writers who tackled thequestion of the prospects for development in underdevelopedcountries explicitly, and recognized clearly how different thepresent Marxist orthodoxy is from classical Marxism. (Barratt-Brown 1972 covered some of the same ground.) Sutcliffe recognizedthe facts of industrial growth in the periphery, but argued that theevidence did not answer the critical question: can there be a fullindependent industrialization like that of Japan, or, failing that, canthere be enough development to create ‘progressive socio-politicalforces’ (a proletariat like that of Russia in 1917)? Apart from someproblems of measurement (the figures may overstate the extent ofdevelopment) he gave two reasons for discounting the observedindustrial growth. First, growth has often been by importsubstitution concentrated in the production of luxury consumergoods for which the demand is limited, and this type ofindustrialization reinforces the unequal income distribution andsocial structure which limits demand. This is the argument of thedependency theorists (see Furtado 1973); to be acceptable it needsto be supported by some explanation of the failure ofindustrialization to penetrate into other branches of the economy orinto export markets. Second, growth of industrial output may notbe matched by growth in employment, since high productivity,capital-intensive methods are used. With production in the hands offoreign capital, the result is ‘the absence of a bourgeoisie and theabsence of a proletariat’ (cf. Arrighi, chapter 10 above). Hencecapitalist development may not create the kind of class structurethat Marx described, in which the vast majority of the population isdrawn into the proletariat. This ‘marginalization’ of masses ofpeople has been stressed by many writers. It should be remarkedthat Marx in fact predicted a growing ‘relative surplus population’,and it could be said that the underdeveloped countries fit Marx’smodel of capitalist accumulation more closely than do the advancedcountries.

Sutcliffe proposed various criteria for ‘independent’industrialization, which, he says, ‘does not mean autarky, but

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carries with it the idea that industrialization is not merely “derived”from the industrialization of another economy’ (1972: 174). Hiscriteria for economic independence are that production should beorientated principally to the domestic market, that investmentfunds should be raised locally or at least should be under localcontrol, that there should be a diversified industrial structure, andthat technology should, in some (not very clearly defined) sense, beindependent. The basis of these criteria is not clear; they show therather nebulous character of the concept of dependence. In any case,why should it matter where development is ‘derived’ from? Theresults are surely more important.

Economic independence also has its ‘social and politicalcounterparts’. Here Sutcliffe’s argument seems stronger:

Economic development only happens when the surplus gets intothe hands of those who will use it productively. . . . This partlyimplies the need for an industrial bourgeoisie supported by astate that is capable of defending its interests. . . . The state mustbe largely independent both of those local social interestsopposed to industrialisation and also of foreign interests.(Sutcliffe 1972: 176-7)

This is the nub of the matter: is an independent nationalbourgeoisie formed? Independence in this sense does require thatdevelopment be (mainly) financed locally and under local control,but it requires ‘technological independence’ only in the sense thatuse of foreign technology may lead to effective foreign controlthrough conditions attached to licensing agreements, and the like.(See P. Patnaik 1973, for a detailed case study of the dependence thatcan result from reliance on imported technology through jointsubsidiaries.) I see no reason why an independent capitalist classshould not be formed on the basis of export-led industrialization orcopying of techniques; in an interdependent world, a degree ofspecialization, together with large-scale exchanges of goods, capitaland technology, are to be expected.

Sutcliffe’s concern with technological independence seems tostem mainly from a different concern. He evidently thought that‘foreign’ technology (can technology have a nationality?) isunsuitable because it is too capital-intensive (1972: 176). This linehas been widely argued; capital-intensive technology means


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relatively little employment, which has further consequences for thestructure of demand. However, it is likely that capitalist firms,whether foreign or national, will adopt the technique thatmaximizes profits. Underdeveloped countries constitute a largeenough market for capital goods for it to be profitable to adapttechnology to prices and wage rates there. It is thus unlikely thatlocal firms using locally devised techniques would make verydifferent choices. There are, in any case, reasons to think that achoice of technique that maximizes reinvestable surplus may be theoptimum choice from the point of view of long-run growth (Dobb1955, 1960; Sen 1968; Amin 1976: 320). Emmanuel (1982) hasargued forcefully that underdeveloped countries should welcomeinward investment as a way of acquiring technology, and shouldadopt ‘best practice’ techniques.

Sutcliffe argued that independent development (in the sense inwhich he defined it) was unlikely, unless the links betweenmetropolis and satellite are disrupted by inter-imperialist war oracute capitalist crisis. The prospects of development are limited bythe relative backwardness of the underdeveloped countries, bymonopolistic control based on technological superiority, and by thepumping of surplus out of underdeveloped countries byrepatriation of profits and by unequal exchange. These are allfamiliar arguments.

By the 1970s and 1980s, the tide was running very stronglyagainst Sutcliffe’s kind of dependency theory, and classical Marxistideas were making a strong comeback. One of the most importantcontributions to this trend was Bill Warren’s Imperialism, Pioneerof Capitalism (1980), left incomplete by his tragically early death,and published posthumously. The main lines of his argument hadalready emerged in a number of earlier articles (Warren 1971,1973). For a trenchant critique of Warren, see Ahmad, whodescribes Warren’s work as ‘shallow and wrongheaded’ (1983: 65);a more measured attempt by Foster-Carter (1985: 21) to preservesome of dependency theory seems to empty it of most of its content.

Warren’s writings are very much in the spirit of the CommunistManifesto and of Marx’s writings on India (see chapter 2 above).Capitalism is a progressive mode of production, which differs fromall preceding forms of society by generating continuous technicaladvance, freeing individual creativity and at the same time allowingeconomic gains from large-scale production. The ‘humanistic side’

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of capitalist culture promotes equality, justice, generosity, and thespirit of inquiry and adventure, and has done so since the beginningsof capitalism. It is a ‘bridge to socialism’, not only economically, butalso culturally and politically, since Parliamentary democracy, thenormal political form of a capitalist state, provides the best politicalenvironment for the socialist movement. ‘The process of expandingParliamentary democracy . . . has thus far proved to have a powerfuland irresistible momentum within capitalism’ (Warren 1980: 30).

He defined imperialism as ‘the penetration and spread of thecapitalist system into non-capitalist or primitive capitalist areas ofthe world’ (1980: 3). Given his strong emphasis on the progressiverole of capitalism, it is not surprising that he treated imperialism ashistorically progressive, since ‘the devastatingly superiorproductivity and cultural attributes of capitalism are bound, in theend, to subordinate all other modes of production and eventuallyeliminate them entirely’ (1980: 40). As Warren defined it,imperialism can continue after decolonization, but it is inherentlyself-limiting. Once the whole world becomes capitalist (orsocialist), the spread of capitalism must come to an end.

Colonialism, direct political and military control over subjectterritories, is a specific stage of imperialism. It is, as Warrenrecognized, hard to support the undemocratic imposition of outsidecontrol on a subject population, but he argued that it was time toshed liberal feelings of guilt, and recognize the positiveachievements of colonial regimes. The most dramatic evidence ofthe benefits of colonialism is the improvement in health whichfollowed colonial conquest, measured by improved life expectancyand the resulting population explosion. Like Marx, Warren took avery positive view of population growth as a stimulus to economicdevelopment, and dismissed Malthusian fears more casually thanmost commentators feel able to do. He also stressed theimprovement of education under colonial rule, which transmittedboth the technical and the cultural achievements of capitalism intonew areas of the world. This does not mean that he dismisseddemocratic, anti-colonial struggles. Modern anti-colonialism isitself a product of the transmission of capitalist culture into thecolonies, and is both inevitable and desirable. What he did arguewas that Marxists should not deny the achievements of colonialism,that they should have no truck with sentimental and backward-


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looking opposition to capitalist penetration, and that they shouldnot confuse bourgeois nationalism with socialism.

Warren’s essential argument was that development based onforeign (or foreign controlled) capital is complementary to thedevelopment of national capital (1973: 39), given a state apparatuswhich exerts pressure on foreign business and promotes nationalcapitalist development. He argued the case, in his 1973 article,largely in the context of resource-based international enterprises(fuel and materials), showing that local governments havesuccessfully extracted greater shares of revenue and greater control.Since then, of course, the OPEC countries have gone much furtherin this direction. The same developments, he argued, were takingplace in manufacturing. In particular, the position of the hostcountry is strengthened as its nationals acquire greater experienceand knowledge in particular industries, as a result of the simplepresence of the industry and even more as a result of governmentpressures to employ and promote local residents. Partly-ownedsubsidiaries of multinational companies tend to come more andmore under the control of local shareholders, who thus form thebasis of a national capitalist class. Multinationals transfertechnology, and, more generally, modern capitalism into the ThirdWorld.

What of imperialism as a system for draining surplus value fromthe periphery to the centre? Warren argued forcefully that even if theoutward flow of repatriated profit exceeds the inward flow ofinvestment, this does not demonstrate that the economic effect isharmful since ‘what exactly is done with the capital “in between”,so to speak, is ignored . . . under capitalism exploitation is thereverse side of the advance of productive forces’ (1973: 39).Capitalism both exploits and promotes development.

If the extension of capitalism into non-capitalist areas of theworld created an international system of inequality andexploitation called imperialism, it simultaneously created theconditions for the destruction of this system by the spread ofcapitalist social relations and productive forces throughout thenon-capitalist world. Such has been our thesis, as it was thethesis of Marx, Lenin, Luxemburg and Bukharin. (Warren1973: 41)

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There is an obvious objection to this view of imperialism. Therehave been few examples of successful capitalist industrializationsince Lenin’s time. (Japan was well on the way before the FirstWorld War.) Over much of the period, the gap between advancedand underdeveloped countries has been widening. Warren repliedthat the period since the Second World War has seen the breakup ofcolonial empires and the establishment of independent states in theThird World. We must presumably see the history of imperialism instages: first the creation of a basis for national (political)independence, and then full capitalist development.

National independence was crucial, according to Warren, bothbecause it provided a political framework for popular pressures forhigher living standards, compelling governments to promoteindustrial development, and because it broke the monopoly hold ofthe colonial power, permitting newly independent states to takeadvantage of interimperialist and East–West rivalries to bargain forfavourable treatment. Capitalist development does not require theprior existence of a ‘national bourgeoisie’; other ruling classes canand must promote industrialization. These “industrialisers” maythemselves become industrial bourgeoisies or may be displaced bythe industrial Frankensteins they have created or they may becomefused with them’ (1973: 42-3; cf. Szymanski 1981: 120, Jenkins1984, and Leys 1978, discussed in chapter 10 above). In addition,imperialist states have positively supported development (by right-wing, nationalist regimes) to contain socialism.

In terms which must have been calculated to provoke, heasserted:

Imperialism was the means through which the techniques,culture and institutions that had evolved in Western Europeover several centuries – the culture of the Renaissance, theReformation, the Enlightenment and the Industrial Revolution– sowed their revolutionary seeds in the rest of the world.(Warren 1980: 136)

Defending himself in advance against charges of ethnocentricityand arrogance, he argued that societies do not develop at the samerate, so some must logically be ahead of others at any given moment,and that to refuse to use the standards of the most advanced is toabandon any conception of human progress. In this, as in most of


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his argument, Warren followed Marx, who never hesitated to passjudgement on systems and societies he regarded as backward.

If Warren’s argument seems shocking and perverse to manyMarxists (as it does) despite its close resemblance to Marx’s ownviews, it is natural to ask what had happened to Marxism in theinterim. A substantial part of Warren’s book is devoted to a critiqueof the course of Marxist thinking on imperialism, from Leninonwards, designed to answer this question. I shall summarize itbriefly. Lenin is the villain of the piece. His earlier work, especiallyhis Development of Capitalism in Russia, escapes censure; indeed,his attack on the backward-looking ideas of the Narodniks fitsWarren’s case well, and is cited approvingly. In Imperialism, theHighest Stage of Capitalism, however, Lenin emphasized the‘parasitism and decay’ of monopoly capitalism, presented capitalexport as the result of a lack of investment opportunities at home,and conveyed an impression of a world in which the prosperity of afew countries was based on the exploitation of half the world. Bydoing this, he was able to present imperialism as the last stage of acapitalism which had become retrogressive everywhere, soimmediate revolution was the only hope. (I am not convinced thatLenin painted quite as gloomy a picture of the prospects forcapitalist development in relatively backward areas as Warrenmade out, though some of his followers certainly did.)

According to Warren, Lenin’s picture is the reverse of the truth.Imperialism is the work of young and vigorous capitalisteconomies. Capital export is not an alternative to investment athome, but is complementary to it. High rates of growth at homecreated demands for materials, and hence for investment in rawmaterial producing areas. Rapid technical change created newinvestment opportunities at home, and also opportunities to applythe new techniques in other countries (railways are an example). Inany case, capital export expanded before the rise of monopoly, anddeclined after the First World War (and after Lenin wrote), whenmonopoly was more widespread.

The first congress of the Comintern, in 1919, restated theclassical Marxist view that the emancipation of the colonies mustfollow socialist revolutions in the metropolitan countries.However, as the 1920s wore on and hopes of immediate revolutionin western Europe faded, communists from colonial countriespressed to be let off the leash. By degrees, Comintern policy shifted

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towards encouraging alliances with bourgeois nationalists, andtowards seeing socialism as an alternative path to modernization,by-passing capitalist industrialization altogether. In 1928, theComintern declared formally that imperialism was economicallyretrogressive in the colonies. (The idea that a political organizationcould settle such a question by decree is itself revealing.) From thenon, according to Warren, Marxism allowed itself to be captured bybourgeois nationalist ideas, in which all ills were blamed onforeigners, and the goals of national independence and socialismwere conflated. The notion of neo-colonialism is a letout fornationalist governments; if independence fails to bring the hoped-for benefits, it must be because the hated foreigners are stillconspiring to undermine real independence.

Warren’s attitude to dependency theory is summed up by hischapter heading: ‘Dependency theory as nationalist mythology’; hisown view could hardly be more different:

Empirical observations suggest that the prospects for successfulcapitalist development . . . of a significant number of majorunderdeveloped countries are quite good; . . . that the periodsince the Second World War has been marked by a substantialupsurge in capitalist social relations and productive forces(especially industrialisation) in the Third World . . . that theimperialist countries’ policies and their overall impact on theThird World actually favour its industrialisation; and that theties of dependence . . . have been and are being markedlyloosened. . . . None of this is meant to imply that imperialism hasceased to exist. . . . What we wish to indicate are elements ofchange. (Warren 1973:3-4)

To justify his position, Warren had to show that capitalism hasbeen, and still is, progressive in underdeveloped areas. He claimedthat the evidence shows unprecedented improvements inproductive capacity and in the material welfare of the bulk of thepopulation of the Third World, in the period after the Second WorldWar. This development has been very uneven, so some countries,sectors and regions have advanced much more than others; indeed,he questioned whether the Third World can be regarded as a validcategory at all.


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There is no need to reproduce the mass of data marshalled byWarren to support his case; the main features of the case can besummarized quite briefly. For capitalist underdeveloped countriesas a whole, the rate of growth of per capita GNP has acceleratedsince the Second World War. The Third World is growing faster nowthan the developed capitalist countries did at any stage in theirhistory. Per capita GNP is not a perfect measure of welfare, but it isclosely correlated with other measures of welfare and development,so the observed growth of per capita GNP does represent a realgrowth of welfare. There is no evidence of any general increase ininequality (though it has to be said that the evidence is so shaky thatit would be unwise to draw any conclusions at all from it). There isalso little evidence of the alleged ‘marginalization’ of large sectorsof the population; open unemployment shows little trend, and thereis equally little evidence of underemployment, at any rate in thesense that individuals are unable to work as much as they want(hours of work are often very long). Poverty, of course exists, andmuch work is still wasted by low productivity, but both aredeclining. The Third World’s share of world output and of exportsof manufactured goods has grown over the period. Agriculturalperformance has not been so good, but this is largely the result ofmistaken policies; improvement is possible. The 1980s, it is true,have been more difficult than the earlier periods covered by Warren,and the heavy debt burden of some Third World countries will holdback gains in welfare, if not in output, but these are minorqualifications. China and India, the two most populous countries inthe world, did well in the 1980s.

Warren’s tone is at times irritatingly Panglossian, but his mainconclusions cannot be denied; capitalist growth in the Third Worldin the post-war period has been a striking success. Socialists haveoften implicitly defined development in such a way that capitalistdevelopment is effectively ruled out. If development is defined byreference to the ‘needs of the masses’, then Marxists are unlikely toaccept that capitalist development can fit the bill, but this leaves usunable to distinguish between continued stagnation, anddevelopment that is successful, in capitalist terms, in that it createsconditions for continued reproduction of capital.

Two more substantial criticisms of Warren’s arguments remain.First, he was too ready to generalize about the whole of the ThirdWorld. As he admitted in passing, the record of development is

AFTER IMPERIALISM?

283

strikingly uneven. Some countries have grown at quiteunprecedented rates, but there are others, notably in sub-SaharanAfrica, where per-capita incomes have actually fallen oversubstantial periods of time. This should not give any comfort todependency theorists or to those who blame capitalism for failuresof growth, since the low-growth countries are, in the main, thoseleast involved in the capitalist world system, but it does suggest thatit is more important to explain exactly why capitalism hassucceeded so dramatically in some cases and not in others, than toinsist that it is equally effective everywhere.

Second, his claim that capitalism generates developmentconveys, and I think must have been intended to convey, a furthermessage, that only capitalism can carry development to the pointwhere a genuine socialist revolution is possible. Throughout thebook, the implication is that there is a single mainstream ofhistorical development, running through the development ofcapitalism in Europe and spreading to encompass the whole worldthrough the agency of imperialism. Now this may be true (it iscertainly consistent with Marx’s views, give or take some famousbut lightweight remarks about the possibility of a distinctivelyRussian route), but it is clearly a case that needs more discussionthan Warren gave it. It is possible, for example, to argue thatcapitalist development is taking place, but socialism offers a betteralternative. One cannot blame Warren for not arguing the case moreexplicitly, since he did not live to do so.

11.4 SUMMARY

In the 1960s and 1970s, Marxist writers generally predictedcontinued United States dominance in the capitalist world, and sawlittle chance of underdeveloped countries improving their relativeposition without a complete break with the world capitalist system.Both predictions look pretty doubtful now. Multinationalcorporations are subject to the same market pressures as any othercapitalist firms. The only way they can evade the imperatives ofcompetition is by turning to their home state for support, but thecapacity of the state to help them has been drastically curtailed. UShegemony in the capitalist world is clearly over, so the fiercelyindependent states of the Third World can play off one capitalist


284

power against another. The most important limitation on thegrowth of any one Third World country is likely to be competitionfrom others, so growth will continue to be very uneven, as capitalistgrowth always has been. Established industries in advancedcountries are threatened by the continued development of industrialcentres in low-wage areas; perhaps it is the centre, not the periphery,which now has most to lose from participation in the capitalistworld system. The world order created by imperialism is changingquite rapidly.

285

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Index

Notes: 1. Because of differences in terminology between writers, the actualword or phrase indexed may not appear in the corresponding text.Conversely, related material may be indexed under several headings. 2.Places and historical events are very sparingly indexed, because this is abook about theories.

accumulation of capital

(investment): geographical

pattern of 100-1, 121, 169-70;

incentive for 63-4, 171;

Luxemburg on 61-6;

and markets 31-2, 156, 172-3,

see also under-consumption;

and monopoly 140-2;

primitive 40, 69, 72, 244-5, 255;

and reproduction 31;

and surplus 143-4, 153, 169;

in underdeveloped countries 254;

on world scale 182;

see also reproduction, extended

Adam, G. 170

Addo, H. 163, 165

Africa 9, 241-5

agriculture 8, 40, 154-5, 226,

see also peasants

Ahmad, A. 276

Alavi, H. 237-9

Allett, J. 74

Althusser, L. 232

Amin, S. 22, 153, 162, 163, 182-95,

199, 201, 239, 253, 263, 273, 276;

on peripheral capitalism 188;

on unequal specialization 183,

189-95

Anderson, P. 38, 39

Arrighi, G. 110, 225, 236, 241-5,

253, 274

Aston, T. 229

Bagchi, A. 116

balance of payments 172, 173, 207, 242

Balibar, E. 232

Banaji, J. 5, 237, 238 banks 91-3, 118;

see also capital, financial

Baran, P. 21, 73, 120, 136-60, 161, 168, 185, 186, 233, 239; on advanced countries 145-50;

on monopoly 137-42; on surplus 142-5; on underdeveloped countries 150-

60 Barone, C. 153, 163 Barratt-Brown, M. 274

Bauer, O. 65, 67 Bettelheim, C. 201 Bleaney, M. 31

Bortkiewicz, L. von 202 bourgeoisie see capitalist class Bowles, S. 35

Bradby, B. 232 Braverman, H. 215 Brenner, R. 5, 163, 182, 229-31, 238

Brewer, A. 26, 183, 192, 220 Britain (England): export of capital

by 81; industrial revolution in 5,

216-7; and laissez faire 104-5; see

also empire, British Bukharin, N. 7, 20, 58, 71, 88-9, 92,

96, 97, 107, 109-10, 116, 121, 122, 123, 133, 139, 147, 167, 263,

INDEX

295

271, 278; on imperialism 111-6; on labour aristocracy 123-8; on

ultra-imperialism 129-33

Cain, P. 84, 85

capital: accumulation see

accumulation of capital;

commercial (merchant) 33, 36, 43-7, 50, 92-4, 105, 151, 155-6,

165-7, 170;concentration and

centralization of 33, 90-1, 112,

230, 263; concept of 28, 67; constant 30; export of 7, 78-81,

100-4, 112, 117-22, 132, 148-9,

263; finance 85, 92-5, 102, 104-7,

117, 122-3, 129, 235; financial 36, 92-4, 105; industrial 35, 36,

44, 50, 92-4, 105;

internationalization of 18, 111-2,

114; mobility of 65, 100, 202, 219; money 30, 63, 91; monopoly

7, 47, 117, 137, 145, 165, 170;

national 132; nationalization of

111, 114; organic composition of 34, 64, 214; technical composition

of 34; value composition of 33;

variable 30

capitalism: anarchy of 29, 62, 64, 115; concept of 1, 13, 39, 178,

179-81, 228-9; and development

of productive forces 16-17, 42, 70-

1, 95, 182; and development of underdeveloped areas 17, 103-4,

120, 171, 228-31, 272-83;

expansion into pre-capitalist

societies 43, 59, 66-72, 233; geographical expansion of 6, 17,

18, 42-3, 59, 103-4; imperialist

stage of 7, 21, 110, 117; Marx on

16-17, 42-8; origins of 36-41, 227-8; peripheral 183-4, 188; and pre-

capitalist modes 29, 59, 66; and

underdevelopment 161

capitalist: agriculture 40, 154, 227,

236-40; class (bourgeoisie) 36,

105-6, 158, 210, 254; relations of

production 5, 27, 28, 59, 103, 236

Cardoso, F. 162

cartels 91, 96, 113, 139-40

centre and periphery 18, 21-2, 161-2,

182-3, 195

Chandler, A. 167

Chattopadhyay, P. 237-8

class(es): alliances between 243;

concept of 12, 178, 246-7; and

finance capital 104-6, 115; and

mode of production 12, 232, 252;

ruling 15, 99, 105-6, 147, 164,

173; in underdeveloped countries

10, 225-59; and unequal exchange

210; working see proletariat

colonialism: Marx on 25-6, 48-56

colonies: cheap labour in 2, 67, 71,

128; exploitation of 99;

investment in 100; as markets 2,

51, 71, 126; and raw materials 2,

71, 119

Comintern (Communist

International) 133-4, 136, 280-1

comparative advantage

(comparative cost) 190-2

competition: and dynamics of

capitalism 33, 139, 145-6, 230;

and economic development 42-3,

219; foreign 156, 189; persistence

in monopoly stage 89, 114, 115-6,

139; and prices 35, 96, 202

compradors 139, 251, 256

Congo-Brazzaville 246-53, 257

core and periphery 18, 176-8

cotton 6, 47, 51, 67

Cowen, M. 254

crisis 30, 32, 43, 63

Cutler, A. 232


296

De Janvry, A. 195, 243 dependence 161, 196-7

dependency theory 22, 134, 161-99, 253, 281

development: concept of 215;

constraints on 45, 189-92, 195, 197, 242-3, 251-2; of forces of production 13, 16, 42, 143, 182,

229-30; prospects for 24, 133-4, 160, 272-83; Soviet model of 160; unequal 24, 210; uneven 120, 197,

218, 260; and wages 183-4, 210-14; see also accumulation; capitalism, and development of

underdeveloped areas; industrialization; underdevelopment

Dobb, M. 136, 276 Dos Santos, T. 162, 171-2 dualism 172 180

East India Company 50-1, 53 economic: growth see accumulation;

interests and policy 2, 15-16, 104-6, 129, 174; surplus see surplus; system (Laclau) 179-80; territory

95-110, 102-3, 132 economists, classical 12, 142, 168 Edelstein, M. 81

Emmanuel, A. 22, 34, 183-4, 193, 200-24, 276; on demand and development 210-14; on unequal

exchange 201-8, 216-21; on wages 208-10

empire(s) 2-3; British (English) 4, 5,

6, 48, 82, 94, 107, 123; commercial 44-5; Dutch 4, 6; French 4, 6, 248-51; Portuguese 4;

Spanish 4; world 176 Engels, F. 42, 48, 49, 52, 97, 125 Etherington, N. 74, 84

Europe: feudalism in 37, 66, 186; US investment in 269-70

exchange: function of 29, 64; and pre-capitalist modes 29, 44-6,

186; unequal 22, 183-4, 193, 200-24

feudalism: concept of 13, 38-9, 179-80; and economic regression 230-

1; in Europe 37, 66, 186; in Japan 6, 37, 186; in Latin America 39, 180, 239; and origins of capitalism

37-9, 151, 185-7, 227-8, 234-6; and tribute-paying mode 186

Foley, D. 26

Foreman-Peck, J. 81 Foster-Carter, A. 180, 225, 232, 233,

237, 276

Frank, A. G. 5, 17, 18, 152, 153, 161-76, 198-9, 228-9, 233, 236, 237, 238, 256, 260, 272, 273;

concept of capitalism 26, 163-4; criticized by Laclau 179-82; on development of

underdevelopment 164, 168; on metropolis–satellite relations 164-8

Friedman, A. 167 functionalism 181 Furtado, C. 172

Gallagher, J. 256-8 Germany 72, 91-2, 94, 107-8, 129-

30 Geschiere, P. 253 Gibson, B. 201

Griffin, K. 162, 163 Gurley, J. 162, 163

Harris, N. 198 Hay, D. 140 Hilferding, R. 7, 20, 58, 88-108, 111,

116, 117, 118, 120, 121, 124, 126, 129, 132, 134, 167, 263; on capital export 100-4; on class

INDEX

297

structure 104-6; on imperialism 106-8; on monopoly and finance

capital 89-95; on protectionism 95-100

Himmelweit, S. 27, 35, 224

Hindess, B. 232 historical materialism 11-16 Hobson, J. 7, 20, 21, 31, 32, 62, 73-

87, 88, 103, 116, 119, 120-1, 129, 137, 138, 149, 150; on imperialism 82-6; on monopoly

and capital export 77-81; on under-consumption 75-7

Hodgson, G. 35

Holland, R. 256 Howard, M. 26, 202 Hurst, P. 232

Hussain, A. 232 Hymer, S. 167, 170, 265, 269

ideology 104-6, 110imperialism: ‘capitalist theory’ of 74,

82; classical Marxist theories of

20, 58, 88, 109; concept of 3, 7, 25, 88-9, 107, 110, 130, 277; excentric theory of 256; finance

capital and 100, 107-8, 122-3; history of 3-10; monopoly and 7, 73, 79-81, 112-6, 117, 200;

rivalry and 7, 71, 89, 131, 135, 147, 270-1; use of term 88-9, 110-1, 147, (by Lenin) 7, 110-1; and

war 7, 108, 124, 131, 149; see also

ultraimperialism imperialist: ideology 106, 110, 147;

policies 110, 147; stage of capitalism 7, 21, 117, 188

India: Marx on 37-8, 44, 49-56, 69;

mode of production in 186-7, 236-40

industrial: revolution 5-6, 216-7; see

also capital, industrial

industrialization: independent 247-6; in underdeveloped countries

173, 189, 197, 273-6 industry: modern 46-8; in

underdeveloped countries 152,

156-8 International, Communist

(Comintern) 133-4, 136, 280-1

international trade (exports, imports): dependence in 172-3; free trade 95, 129, 200, 256; and

profits 34; and surplus realization 64, 148; unequal exchange in 200-24; see also balance of payments;

competition, foreign; tariffs investment see accumulation;

capital, export of

Ireland 48-9, 56

Japan: development of 6, 159;

feudalism in 6, 37, 186 Jenkins, R. 270, 279 joint stock companies 90, 93-4

Kautsky, K. 96, 108, 116-7, 122, 128-33, 271

Kemp, T. 136

Kenya 253-5 King, J. 26, 202 Knei-Paz, B. 226

Krader, L. 38 kulaks 40, 243

labour: aristocracy 52, 117, 123-8, 150, 242; division of 95, 111-2, 128, 176; and labour-power 27;

migrant 242; necessary 32; organic composition of 214-6; productive 144; reserve army of

30, 43, 67, 230; surplus 32, 142; see also value, theory of

labour-power: concept of 27; value of

27-8; see also wages


298

Laclau, E. 163, 179-82, 229, 232, 236

landlords 39, 154 latifundias 164, 239, 245 Latin America 9, 163-76, 217, 243,

245; feudalism in 39, 180, 239 Le Bris, E. 232 Lenin, V. I. 7, 16, 20, 21, 39, 56, 71,

72, 73, 88-9, 92, 96, 107-8, 109-10, 133-4, 136, 139, 147, 167, 182, 235, 260, 263-4, 267, 269,

271, 278-9; on development of capitalismin Russia 119, 227-8; on formation of home market 119;

on labour aristocracy 52, 123-8, 150; on monopoly and inter-imperialist rivalry 116-23; on

ultraimperialism 129-33; use of term ‘imperialism’ 7, 110-1

Lewis, W. A. 201, 221

Leys, C. 241, 243, 253-5, 279 Little, I. 173 Luxemburg, R. 19, 32, 58-72, 86, 95,

103, 134, 231, 233-4, 236, 263, 278; on capitalist expansion 66-7 2; on realization of surplus value

60-6

McEachern, D. 237

Magdoff, H. 268 Malthus, T. 208 Mandel, E. 201, 269

Marx, K. 5, 16, 19, 21, 24, 25-57, 58, 60, 64-5, 67, 68, 70, 89, 90, 103, 118, 120, 124, 130, 134, 146, 161,

168, 169, 179-82, 185, 200, 201-2, 209, 215, 223, 225, 226, 228, 236, 260, 263, 267, 274, 276, 277,

278, 280; analysis of capitalism 26-36, 42-8; on China 38, 51, 54, 56; on colonialism 25-6, 48-56;

on historical materialism 11-15; on India 37-8, 44, 49-56, 69; on

Ireland 48-9, 56; on origins of capitalism 36-41

Matthews, R. C. O. 141 Meillassoux, C. 232 mercantile period 4-5, 23, 43-6, 187

metropolis–satellite relations 18, 164, 256

Michalet, C. 119, 235, 263-4

Miles, R. 232, 252 military spending 147 mode(s) of production: ancient

(slave) 13, 186; articulation of 133, 225, 232-6, 246-53; Asiatic 14, 37-9, 52-5, 186; capitalist see

capital, capitalism; colonial 234-5, 238-9, 249-50, 252-3; concept of 12-13, 22-3, 180-1, 226-40;

feudal see feudalism; lineage 246-53; patriarchal-peasant 239; petty commodity 14, 188; pre-capitalist

37, 153, 183, 234-6, 252; primitive-communal 12, 13, 186, 241, 246, 252; as stages of

development 12-13, 226-8, 237; tribute-paying 185-7

Mohun, S. 27

money 90; capital 30, 63 monopoly: in banking 92, 118;

capital(ism) 7, 47, 117, 137, 145,

165, 170, see also capital, finance; concept of 89, 165-6; effects of 21, 124-7, 140-1; forms of 91, 113,

139-40; and imperialism 7, 73, 77-81, 139-42; mercantile 44; and technical change 140-1; and

underconsumption 73, 77-81, 139-42; and underdevelopment 157; and wages 126-7

Monthly Review 137 Morishima, M. 27, 65, 222 Morris, D. 140

multinational corporations 93-5, 166, 170-1, 194, 261-5, 278

INDEX

299

Mummery, A. 73, 76, 77 Murray, R. 266

Narodniks 39, 280 neo-colonialism 235, 236, 251

Nicolaus, M. 268

Okishio, N, 35

Palloix, C. 262 parasitism 120-1, 123, 134 Patnaik, U. 237, 238, 243

peasants 39, 41, 70, 154, 231, 241, see also agriculture

periphery: centre and 18, 21-2, 161-

2, 182-3, 195; core and 18, 176-8 Philpin, C. 229 Porter, A. 256

Porter, B. 74 Poulanzas, N. 268-9 prices: of production 35, 200, 201-2,

207, 222-4; see also value production: of commodities 26; and

exchange 29; forces of 11, 42, 143,

182, 236, see also capitalism, and development of productive forces; means of 27, 66-7; methods of 77,

214-6; prices of 35, 200, 201-2, 207, 222-4; (social) relations of 11, 29, 40, 168, 177, 236, see also

capitalist relations of production; modes of production

productivity, international

differentials in 24, 183-4, 192-3, 203, 218

profit: determinants of rate 33, 202;

equalization of rates 35, 65, 200, 202; falling rate of 33-5, 101, 118, 181; reinvestment of 171;

repatriation of 170-1, 278; and tariffs 97; see also surplus; surplus value

proletariat (workers, working class): effects of imperialism on 123-8;

formation of 39, 227; in southern Africa 244-5; in underdeveloped countries 158, 242, 274; see also

accumulation, primitive; capitalism, origin of; labour; labour-power; wages

protection see tariffs

Radice, H. 265

Redlich, F. 167 reproduction 60; concept of 29-31;

extended (expanded, etc.) 29, 30,

32, 64-5, 234; schemes of 31, 64-5, 184; simple 29, 30

revolution 16, 89, 235

Rey, P. P. 5, 225, 226, 241, 257; on articulation of modes 231-6; on Congo-Brazzaville 246-53

Ricardo, D. 12, 183, 192, 208 Robinson, J. 64 Robinson, R. 256-8

Roemer, J. 35, 201 Rowthorn, R. 265, 266-7, 269-70 Ruccio, D. 162, 232

Rudra, A. 236

Samuel, M. 232

Samuelson, P. 192 satellite and metropolis 18, 164, 256 Sau, R. 237, 238

Saul, J. 241 Sautter, G. 250 Sen, A. K. 276

Shaikh, A. 35 Simon, L. 162, 232 slave trade 247-8

slavery 68, 240, 247; see also mode of production, ancient

Smith, A. 12, 83

social formation: concept of 14, 232 Solow, R. 77


300

specialization: pattern of 173, 189-95, 203; unequal 183

Sraffa, P. 202, 222, 223 Stalin, J. 136 state: and absorption of surplus 147-

8; capitalist 15-16; and capitalist development 41, 254-5, 275; and finance capital 104-6, 114-5; nation 71, 105, 122, 145, 264-7; and theories of imperialism 15, 122-3; in underdeveloped countries 158-60, 174-5

Steedman, I. 27 Stewart, C. 253 Stolper, W. 192 surplus: absorption of 146-50, 153;

concept of 142-5, 168-9, 186; expropriation by metropolis 164, 168-71; international transfer of 150-1, 176, 278; and pre-capitalist social formations 186; product 28, 142, 246; size of 146; in underdeveloped countries 153

surplus value 27-8, 32-3, 97, 142; absolute 32-3; rate of 33; realization of 60-6, see also reproduction, extended; accumulation, and markets; relative 32-3

Sutcliffe, B. 271, 273-6 Sweezy, P. 32, 73, 136-42, 180, 268Szymanski, A. 125, 133, 157, 226,

257, 279

tariffs (protection) 95-100, 113, 127, 175, 212; and capital export 101; and industrial development 48; and monopoly pricing 96-9; and world market 99

technique, choice of 275-6 Terray, E. 232 Third World see underdeveloped

countries trades unions 126, 209

Trotsky, L. 88, 226-7

ultra-imperialism 116, 128-33, 271 under-consumption(ism) 31-2, 62,

119, 137-9, 173, 214; Hobson on 73, 75-81, 86

underdeveloped countries: agriculture in 10, 154-5, 236-40; class structure in 10, 158, 225-59; comparison with advanced 1, 121, 218; foreign capital in 157-8, 278; industrialization of 173, 189, 273-6; industry in 152, 156-8; merchants in 155-6; typical 9-10, 152-3

underdevelopment: causes of 18-19, 150-2, 181-2, 229-30; concept of 19; development of 164, 168

unemployment see labour, reserve army of

unions see trades unions United States of America: agriculture

in 70; development in 174-5, 217-8, 221; dominance of 268-72; monopoly in 78

value: exchange 26; of labour power 27-8; theory of 26-7, 168-9; use 26; see also surplus value

van Binsbergen, W. 253

wages: determinants of 28; and development 183-4, 210-14; and unequal exchange 202-10; and value of labour power 28

Wallerstein, I. 5, 17, 18, 22, 162, 163, 167, 176-8, 179-82, 196, 198-9, 228-30, 272

Warren, B. 133-4, 160, 254, 266, 273, 276-83

Wolpe, H. 232 workers, working class see

proletariat Wright, E. 27

brewer 1990

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